TDS UNDER SECTION 194R – BRIEF ANALYSIS

AUTHOR :PINKESH112

https://taxguru.in/income-tax/tds-section-194r-analysis.html

From 1st July, 2022, Section 194R will be applicable which states deduction of tax on benefit or perquisite in
respect of business or profession i.e. TDS on benefit or perquisites given.

It is a general practice in many industries to gift cars, luxurious trips, laptops, mobile etc. as a gift for achieving
targets or as an incentives etc specially in the Pharma industries. However, it is very uncertain that out of all such
transactions, how much are reported by the recipient in his / her ITR as gift in excess of Rs. 50K from a non-
relative is taxable u/s 56 of the Income Tax Act, 1961.

To curb this practice, Govt. brought Section 194R to deduct TDS on such benefit or perquisite.

Let us analyse the same as under:

Applicability date 1st July, 2022

Nature of payer Any person carrying business or profession.
Nature of Payee Resident
Rate of Tax 10%
1) If payee is Non Resident as Section 195 will be applicable.

2) In case payer being Individual / HUF whose total sales, receipts or t/o doesn
profession, doesn’t exceed Rs. 50 Lacs in the preceding financial year.
Non Applicability
3) Aggregate value of such benefit or perquisite to a resident payee doesn’t exceed

For FY 22-23, it’s introduced from 1st July, 2022. However, the limit of Rs. 20K w
only but the provision of Section 194R shall apply on benefit / perquisite provided

Nature of benefit or perquisite In cash or in kind or party in cash and partly in kind.
1) The benefit / perquisite provider has purchased the benefit / perquisite befo
purchase price will be the value of such benefit / perquisite.

Valuation of benefit or perquisite 2) The benefit / perquisite provider manufactures such item given as benefit / perq
given in kind its customers for such items will be the value of such benefit / perquisite.

3) In any other case, fair market value of benefit or perquisite.

 Valuation of benefit / perquisite is explained above.

If benefit / perquisite is in cash only then there is no issue in payment of TDS as o

rest will be released to payee. Example: a benefit of Rs. 1 Lakh is to be given then
be deducted and paid as TDS and rest Rs. 90K will be paid to the payee.

How to pay TDS in cash when
benefit is party in kind or totally in
kind.
Now, suppose in case of benefit which is in party kind and in party in cash but cas
TDS liability or the entire benefit / perquisite is in kind only then how to pay TDS.
1) Recipient would pay tax in the form of advance tax and provide a declaration
payment to the payer, or

2) The payer will deduct and pay TDS by himself to the Govt. instead of payee t

However, in this option it is to be noted that the TDS paid by the payer is again an
payee and thus again liable to TDS u/s 194R only and thereby, the working of TD
grossing up.

The payer is not required to verify the taxability in the hands of recipient.
What if that benefit / perquisite is
Payer is required to deduct TDS on benefit / perquisite whether it falls as income o
not taxable in the hands of recipient
for him.

Is 194R applicable if benefit / Section 194R doesn’t distinguish between capital asset and non-capital asset.
perquisite is in the nature of capital
It’s applicable on benefit / perquisite whether capital asset or non-capital asset is no
asset
In general nature, it is also a benefit for the recipient and thus 194R is applicable.

However, it will create lots of difficulties if this is also brought to a tax bracket.

Sales discount / Cash discount / Therefore, it has been clarified in the circular that no TDS u/s 194R is required to
Rebates will attract 194R? discount or rebates allowed to customers.

However, gift of TV, computers, cars, sponsoring a trip etc. will not be covered i
be applicable.

TDS is to be deducted of recipient only and not of employee / director as employ

What if benefit / perquisite is their relation with the recipient entity only.
provided to employee / director /
However, in turn the recipient may add the same as perquisite of that emplo
other person of a recipient
accordingly.

TDS applicable on delivering a 1) If product is returned back, then Section 194R will not be applicable.
product to social media influencers
2) If it is not returned back, then Section 194R will be applicable.
for marketing

Reimbursement of out of pocket
exp.
1) If invoice is in the name of payer and paid by payee and taking reimbursem
applicable as it’s a pure case of reimbursement.
2) If payee is taking invoice in his name but paid by the payer, then it will be tre
Section 194R will be applicable.

TDS u/s 194 will not be applicable except for below:

1) Incentives / benefits given to dealers in that conference

2) Expenses attributable to leisure trip or leisure component even if it is incidental

Dealer conference to educate the
dealers about the products of the 3) Expenses incurred for family members of accompanying the person attending co
company
4) Expenditure on participants for days which are on account of prior stay or
conference.

5) Situations similar to above.

Along with the provisions of Income Tax Act, 1961, GST provisions are also to be
GST Applicability
Section 17(5) of the GST law states that credit to be reversed with respect to the go
Source: Section 194R of the Income Tax Act, 1961 and Circular No.

Thank you !!