Section 194R TDS on Benefit or perquisite in respect of business

Background

The Finance Act, 2022, introduced Section 194R, in which the deduction of tax on benefits or perquisites in respect of businesses or professions.

Businesses, companies, or entities usually provide multiple types of benefits and perquisites to their partners i.e.. Distributors, channel partners, agents, or dealers to incentivise and motivate them to promote further growth of the business carried on by the company. The benefits or perquisites would include the travel packages, gift cards or vouchers or hampers, products under incentive schemes or the usage of business assets etc.

Purpose of introduction

This section 194R is helpful to plug the possibility of tax evasion in businesses or professions. In India generally companies claimed the expenses for business promotions while offering various gifts, perks, perquisites, or benefits to its partners, distributors, dealers, or channel partners under Section 37 of Income-tax Act, 1961.

In case of medical professional receives free samples for distribution, it has to be shown as a benefit or perquisites and this will include as business income of recipient. The treatment of this expense as sales promotion technique will not be impacted the treatment to be taken by the recipient. The pharma company will claim the expended amount as sales promotion expenses. On the other hands, the promotion would be considering taxable income in the hands of recipient, and TDS is required to be deducted by the pharma company on the same.

So, the purpose of the section is to widen the scope of tax to cover more instances of taxes and plug any scope of tax evasion.

Section 194R

1. The applicability of this section from 1^st of July 2022. It applies only to resident recipients (receiver of a benefit) of benefits or perquisites.
2. The section attracts only when any business, company or professional gives any perks, gift, incentive or any other benefit (monetary or non-monetary) in cash, kind, or partially in cash and kind to a person (resident) exceeding Rs.20,000 during the financial year.
3. The applicable rate of 10% of the value or aggregate of value of benefit or perquisite provided. No surcharge or health and education cess shall be added to the applicable rates. The rate would be 20% if PAN is not quoted by the deductee.
4. No tax will be deducted at source when the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the year does not exceed INR 20,000.
5. The provision is not applicable for an individual or HUF to deduct tax where total sales do not exceed INR one crore in case of business or INR fifty lacs in case of the profession in the immediately preceding financial year.
6. The section does not apply to employees who receive benefits from their employers. Section 192 will apply to them. If there is no business relationship between both the recipient and payer, then this section will not get attracted.
7. In case, the recipient is non-resident, then tax will be deducted accordingly to the provisions of section 195.
8. Form 16A issued by the deductor to the deductee on quarterly basis. The deductor can download form 16A from Traces portal and deductee can view the same entry in their 26AS.

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