The Union Budget 2022 introduced a new section for TDS. TDS under Section 194R relates to the deduction of tax on benefits or perquisites in respect of business and profession. The department mainly inserted this section to prevent the misreporting of income that individuals receive through perks or other non-monetary benefits from businesses or professions.
Applicability of Section 194R
If any resident individual receives any gift, perks, incentive, or any other monetary or non-monetary benefit from a business or profession in cash, kind, or partially in cash and kind, and the value of such benefits or perquisites in monetary term exceeds INR 20,000 during the financial year to one beneficiary then this section applies to you.
Who shall deduct TDS u/s 194R?
If any business or profession is giving benefits or perquisites to any agent, channel partner, dealer, distributor, or any other person of an amount more than the specified amount during the financial year to one recipient then they are liable to deduct TDS under Section 194R.
However, it does not apply to the Individual/HUF to deduct TDS if the total sales don’t exceed INR 1 crore in the case of business and INR 50 Lakh in the case of a profession in the immediately preceding financial year.
Purpose of Section 194R
The main purpose of introducing this section is to avoid tax evasion. Previously the businesses while giving the perks, benefits, and other non-monetary benefits to their dealers, partners, and other persons claimed it as a business expense while the person who is receiving such benefit was not showing this as their income.
For example- A cement manufacturing company gives non-monetary benefits like Motorcycle, electronic items, and leisure trips to their dealers if they achieve the specified targets.
In the above example, the company that has given benefits to its dealers was showing it as a business expense while the person who has received such benefit was not showing this as his income while filling the income tax return since it is in kind. So to avoid this misreporting of income the Income tax department has introduced this section 194R.
TDS Rate Applicable on Section 194R
- This section came into effect on 1 July 2022 and the applicable TDS rate is 10%.
- Businesses or professionals should deduct TDS @10% if the monetary value of such gift or perquisites exceeds INR 20,000 during the financial year of each recipient.
Non-applicability of TDS u/s 194R
- This section does not apply to the employees who are receiving any benefits from their employers i.e. (if an Employer-employee relationship exists) then it will be treated under Section 192.
- If the recipient is a Non-resident then tax shall be deducted under Section 195.
- If there is no business relationship then the tax will not be deducted.
How to Deduct TDS from benefits or perquisites?
The person providing such benefits or perquisites must ensure that they deduct and pay taxes for such items before releasing them.
The liability can be discharged by any of the below options:
- Payer either by grossing up the net amount or by paying the tax from his pocket.
- If the payee gives cash to the payer to meet the TDS liability and the deductor deposits the same.
- If the payee has a credit balance, the payer can deduct TDS from that and pay the net amount after deducting the TDS from the payee.
TDS Certificate
The Deductor of the tax shall issue a quarterly TDS certificate to the deductee in form 16A. The deductor can download form 16A from the Traces Account and also the deductee can see the same in their 26AS.
TDS Return
The deductor liable to deduct tax under Section 194R of the Income tax act shall file quarterly returns in form 26Q.
FAQs
Yes, Section 194R is applicable from 01-07-2022. Furthermore, in calculating the threshold limit of INR 20,000, one should also consider the benefits received from 01-04-2022 to 30-06-2022.
How one should calculate the price of benefits or perquisites?
One should calculate the price of benefits or perquisites based on the fair market value of such products.
No, we are reducing these discounts and rebates from the sale price, so we are not treating them as benefits or perquisites.
u/s 194 R the individual should pay tax as per the individual tax slab or it is only 10% flat rate
How will a reimbursement to employee who bought the gift using his corporate card and then sent the gift to client be treated u/s 194R. Reason I ask is while reimbursing, the company is debiting it’s P&L so it is company cost…could that be the rationale for T&E to also come under this section
Hello Sir,
I recieved two prizes in a contest , on which 90% of the amount was gifted as goods and 10% was deducted as TDS under section 149R. Now, I want to file ITR but I don’t know which ITR form should I file ? Kindly guide me.
194R mein received benifit mein ham itr mein kis coulm mein dikhayen aur Keya ye hamaare liye income hai
Commission paid to employees on sales.
This is in addition to his salary on achieving targets.
We have Deducted TDS under Section 194 H.
Whether it should be deducted under Section 194R ??
If dealer who received some amounts and foreign tour on which TDS deducted u/s194 R and showing net profit under section 44 AD . Then this amount received to be shown as income from other sources? Because it won’t shown in GST returns.