A new Section for TDS has been introduced in the Union Budget 2022. TDS under Section 194R relates to the deduction of tax on benefits or perquisites in respect of business and profession. This section has been mainly inserted to avoid misreporting of income that people are receiving in the form of any perks or other benefits in non-monetary form from the business or profession.
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 is applicable 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 is not applicable 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 which 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 is not applicable 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?
It is the responsibility of the person who is providing such benefits or perquisites to ensure that tax is required to be deducted and paid in respect of such items before releasing such benefits or perquisites.
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 own 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.
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.
The deductor liable to deduct tax under Section 194R of the Income tax act shall file quarterly returns in form 26Q.
Yes, Section 194R is applicable from 01-07-2022. Still, for calculating the limit of INR 20,000 the benefits received from 01-04-2022 to 30-06-2022 should also be considered in calculating the threshold limit of INR 20,000.
The price of benefits or perquisites is to be calculated on the basis of the fair market value of such products.
No, these discounts and rebates are being reduced from the sale price so these are not being treated as benefits or perquisites.