Applicability of TDS U/S 194R
Section 194R
Section 194R of the Income Tax Act, 1961, introduces a tax deduction at source (TDS) on benefits or perquisites arising from business or profession. This provision aims to broaden the tax base and capture income that might otherwise go unreported. Let's delve into the specifics of this section:
1. Insertion and Applicability:
- Section 194R was inserted by the Finance Act 2022.
- It became applicable from July 1, 2022.
2. Who is Responsible for Tax Deduction (Deductor)?
Any person responsible for providing to a resident any benefit or perquisite, whether in cash or in kind, arising from business or profession, is required to deduct TDS under Section 194R. This includes individuals, firms, companies, and other entities. Crucially, the person providing the benefit is responsible for deducting the tax, not the recipient.
3. Who is the Deductee?
The deductee is the resident recipient of the benefit or perquisite arising from business or profession. This could be a business owner, a professional, or any other individual receiving such benefits.
4. Threshold Limit:
TDS under Section 194R is applicable only if the value of the benefit or perquisite, or the aggregate of such benefits or perquisites provided to a resident during the financial year, exceeds ₹20,000. If the value is less than or equal to this threshold, no TDS is required to be deducted.
5. TDS Rate:
The TDS rate under Section 194R is 10%.
6. Time of Tax Deduction:
- Credit of such benefit or perquisite to the account of the resident; or
- Payment of such benefit or perquisite,
- whichever is earlier.
Key Considerations and Examples:
1. Benefit or Perquisite:
The term "benefit or perquisite" is wide and can encompass various forms, including gifts, discounts, free samples, sponsorships, training, or any other advantage provided in connection with a business or profession.
Business or Profession:
The benefit or perquisite must arise from the business or profession of the recipient. Personal gifts unrelated to business are not covered.
Cash or Kind:
The benefit can be in cash or in kind. If it's in kind, the deductor needs to determine the fair market value of the benefit for TDS calculation.
Valuation Challenges:
Determining the fair market value of benefits in kind can be complex. Clear documentation is crucial.
Example 1:
A company gifts a car worth ₹30,000 to a distributor as a performance incentive. TDS at 10% (₹3,000) is deductible by the company.
Example 2:
A professional receives free software worth ₹15,000 from a software company. Since the value is below ₹20,000, no TDS is required.
Example 3:
A manufacturer offers a discount of ₹25,000 on goods purchased by a retailer. TDS at 10% (₹2,500) is deductible by the manufacturer.
Practical Implications:
Section 194R has significant implications for businesses and professionals. It mandates TDS deduction on a wide range of benefits, requiring careful tracking and valuation of such benefits. Businesses need to ensure compliance with this provision to avoid penalties. Recipients also need to be aware of this TDS and factor it into their tax calculations.
References
- IndianKanoon
- CAG, 16th June 2022
- Business Standard, Raghav Aggarwal, 31st August 2022
