To expand the realm of TDS, Union Budget 2022-2023 has introduced a new provision Section 194R under the Income Tax Act, 1961 (herein after referred as “The Act”) that provides for deduction of tax (TDS) on benefit or perquisite in respect of business or profession, to be effective from July 1, 2022.
Section 194R mandates a person who is providing any benefit or perquisite, arising from business or profession, to deduct TDS at the rate of ten percent of the value or aggregate of the value of such benefit or perquisite. The benefit or perquisite may be in cash or in kind.
To all assessee (other than Individual & HUF) and Individual & HUF (having Business Aggregate Turnover above Rs. 1 Crore, or in case of Profession, professional receipt above Rs. 50 Lakhs) in the previous year 2021-22 the assessment year 2022-2023. However, there are some other circumstances, wherein the tax shall not be deducted under Section 194R:
- In the case of an employer-employee relationship, tax shall be deducted under Section 192 of the Act
- In the case of the non-resident recipient, tax shall be deducted under Section 195 of the Act
- If there is no connection of benefits or perquisites with the business or profession of the resident recipient
- If the benefits or perquisites are provided to a customer who does not involve in business or profession.
Any person who is deducting the tax on any benefit or perquisite. The deductor can be a resident or a non-resident person.
Any resident person to whom the benefits or perquisites are provided and that is arising from the business or the exercise of a profession by such resident.
10% of the value of the benefit or perquisite.
- Threshold Limit
Total Benefit value > Rs. 20,000 per Financial Year.
OVERVIEW OF CBDT GUIDELINES:
To draw out the strain in implementing the provisions of Section 194R, the Central Board of Direct Taxes (CBDT) has issued guidelines to entangle the provisions of Section 194R of the Act vide Circular No. 12/2022, dated June 16, 2022.
Below are few practical circumstances envisaged in CBDT Circular and summarised in form of FAQ’s which would help taxpayers to interpret the provisions of Section 194R in depth:-
Question 1: Is it necessary to check if the amount of benefit or perquisite is taxable under section 28(iv) of the Act?
Answer: No. the deductor is not required to check whether the benefit or perquisite is taxable in the hands of the recipient under section 28(iv) of the Act as the applicability of Section 28(iv) is not linked to Section 194R. It is a requirement under section 195 for the deductor to determine whether the amount of benefit or perquisite is paid to a non-resident which would be his income and would be taxable.
Question 2: Whether the provision of Section 194R applicable even if the benefit or perquisite is paid in cash?
Answer: Yes, the provisions of Section 194R shall be applicable even if the benefit or perquisite is paid in cash because the benefit or perquisite may be in cash or in kind or partly in cash or partly in kind, as per 1st proviso of the section.
Question 3: Whether amount of benefit or perquisite will cover the capital asset?
Answer: Section 194R does not put at disadvantage on the nature of benefit or perquisite being provided. It is clarified that the benefit or perquisite may be a capital asset like car, land, etc. It would be considered as a benefit or perquisite in the hands of the recipient and shall accordingly be held liable to be taxable.
Question 4: Whether TDS is required to deducted on sales discounts, cash discount and rebates are benefit or perquisites?
Answer: Such discounts are permitted to customers from listed retail sale price, therefore, TDS is not required to be deducted. TDS under Section 194R is required to be deducted in the name of the recipient entity even though the benefits or perquisites may be used by the owner/director/employee of the recipient entity.
However, the provisions of this section are not applicable if any benefit or perquisite is provided to any Government Entity not carrying on any business or profession.
Question 5: How is the valuation of benefit or perquisite required to be carried out?
Answer: The valuation of benefit would be based on the fair market value of the benefit or perquisite, except where the benefit or perquisite provider had purchased or manufactured the said perquisite or benefit. However, GST will not be included for the purpose of valuation of benefit or perquisite.
Question 6: Whether reimbursement of the out-of-pocket expense incurred by the service provider in the course of rendering service is benefit or perquisite?
Answer: Yes, if the receipt of an expenditure is in the name of payer and paid by payee and taking reimbursement, then Section 194R will not be applicable as it’s a pure case of reimbursement and if payee is taking invoice in his name but paid by the payer, then it will be treated as benefit or perquisite and thus Section 194R will be applicable.
OTHER POTENTIAL QUESTIONS:
|1.||What is the due-date of payment of TDS on benefit or perquisite?||CBDT has not notified the due-date of payment of TDS in respect of benefit or perquisite but as per our interpretation, the due-date for payment will be within 30 days from the end of the month in which the deduction is made, as the same due-date is given by the authority under various provisions like Section 192(1A) (Tax on perquisites paid by the employer), Section 194-IB (TDS on rent of property) and Section 194M (TDS on payment to resident contractors and professionals).|
|2.||What is the due-date of TDS Statement in respect of benefit or perquisite?||CBDT has not provided any due-date for TDS statement in respect of benefit or perquisite yet but as per our analysis, it is anticipated that the due-date will be on quarterly basis, as this an expenditure for the company, wherein the date may be the last day of the succeeding month from the quarter end. CBDT may provide a different form for furnishing of TDS statement in respect to benefit or perquisite or may also merge it with the existing Form 26Q which is a quarterly statement of deduction of tax.|
|3.||What is the due-date of furnishing the certificate of TDS on benefit or perquisite to the deductee?||CBDT has not provided any due-date for furnishing the certificate of TDS on benefit or perquisite to the deductee but as per our analysis, the authority may provide the time period of 15 days from the due-date for furnishing the challan-cum-statement, as the same time period is given for other TDS certificates also.|
|4.||Whether the provisions of Section 194R will cover all categories of benefits or perquisites?||CBDT has provided a broader picture of benefits or perquisites that will attract Section 194R but still, there is an ambiguity regarding hypothetical incomes. As per our interpretation and aim of the CBDT, Section 194R tries to cover a wider aspect of benefits or perquisites that will eventually cover all the benefits or perquisites.|
Section 194R will affect professionals such as doctors, social media influencers, but experts say the rules won’t change for salaried employees as it is already covered under Section 192 of the Act. It can be seen that section 194R tries to widen the scope and varied nature of transactions which are arduous to envision. It will be riveting to see how the Government set in place various rules in this respect.
Hence, from now onwards, the taxpayers need to recognise transactions which are in the nature of benefits and perquisites and absorb the new TDS provisions.