In the Finance Act 2022, a new TDS section 194R, has been inserted in the Income Tax Act, and which has been made applicable e.f. 1.7.2022.

In Normal trade practice, it is normal for anyone to receive any Benefits or Perquisites in relation to Business or Profession. so, it is very necessary for us to understand the various type of tax applications on that. recently, Budget 2022-23 has introduced a new Section 194R on “TDS on Benefits or Perquisites provided in respect of Business/Profession”. Here is a details summary of the Applicability of Section 194R, Practical Examples of TDS on Business or Profession Perquisites [Section 194R].

It requires the deduction of TDS at 10% by any person who gives any benefit/perquisite which relates to the business/profession of any resident and value exceeds Rs 20,000 in a year.

This section also applies where the benefit or perquisite is received in kind, in cash, or partly in kind and partly in cash. If the perks are in kind, then FMV shall be taken for valuation purposes.

This section will be applied only in the case of Business or professional perquisites but it has nothing to do with perquisites received by salaried employees from their employers.

Applicability of Section 194R

Any person is other than an individual or HUF whose total sales, gross receipts, or turnover does not exceed rs. 1 crore in case of business or rs. 50 lacs in case of the profession during the financial year immediately preceding the financial year in which such benefits or perquisite is provided by such person.

Tds @ 10% will have to be deducted on Benefits and Perquisite under section 194R. when payment of benefits or perquisite is made by such person whether convertible into money or not. If the value or aggregate value of the benefits or perquisite during the financial year is more than Rs. 20000.

Payment of the benefits or perquisites has to be made to a resident by the resident.

  • Section 194R will not be applicable for individuals/HUF if their turnover in the last FY was up to Rs. 1 Crore (For Business)/ Rs. 50 Lacs (for Profession).
  • Section 194R is also not applicable for government entities if such entity does not carry on any business/profession. [Example: Government hospital, etc.]

Read More: Taxation of Gifts | Section 56(2)(X) of the IT Act, 1961

Clarification issued by CBDT

The Apex body CBDT has come up with a Clarificatory Circular No. 12 of 2022-Income Tax, dated 16.6.2022, containing clarificatory guidelines in the form of ‘Ten Question-Answers’, on newly inserted provisions concerning applicability of TDS on Benefits or Perquisites, u/s 194R of the Income Tax Act. The CBDT Circular provides that:

  • No Tax is required to be deducted under section 194R on sales discounts, cash discounts,s or rebates allowed to customers.
  • TDS will not be deducted on the GST part of the value of benefits or perquisite.
  • Any expenditure which is the liability of a person carrying out business or profession, if met by the other person is in effect benefits or perquisite provided by the second person to the first person in the course of business or profession.
  • so, a Free Medical sample given to the medical practitioner will come under section 194R. along with any gift in cash or in kind.  
  • any Free Travel benefits provided by the provider of benefits or perquisite will also come under section 194R.
  • Valuation of benefit or perquisite will be based on the fair value of that benefit or perquisite.

Let’s Check some of the Practical Examples of TDS on Business or Profession Perquisites [Section 194R]

(1). Dell Computers is providing an incentive of Rs. 5 Lacs if any of their authorized dealers achieve sales of Rs. 10 Crores during the six-month period. Now, here Dell computers need to deduct TDS u/s 194R on Rs. 5 Lac.

(2). “Technical Guruji” received a New Apple Laptop worth Rs. 4 Lacs for unboxing. As per the agreement, after unboxing “Technical Guruji” can keep this Laptop. Now, this will also be covered under Section 194R and Apple will be required to deduct TDS on Rs. 4 Lacs.

(3). Doctors receiving free samples of medicines will also come under Section 194R. If the value of Free Samples by companies exceeds Rs. 20,000 in a year, TDS needs to be deducted u/s 194R.

Check our other blog: Turnover Calculation for Intraday and F&O Trade? | Taxation of Intraday and F&O Incomes

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