SECTION 194R OF INCOME-TAX ACT, 1961
Payment By - Any person except being an Individual/Hindu undivided family (HUF) whose total sales / gross receipts / gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, who is responsible for providing any benefit or perquisite.
Payment to – Any Resident
Nature of Payment- Providing any benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business, or from exercising a profession.
Threshold Limit - More than 20,000 in a FY.
TDS Rate – 10%
General Question Guidelines:
Whether needs to check if the amount is taxable in the hands of the recipient?
No, it is not required to check whether the amount taxable in the hands of the recipient or not.
Whether the benefit or perquisite be in kind or cash
It can be wholly in kind or partly in cash and partly in kind, it can be capital Assets.
What in case of capital asset?
The following benefit are covered:
a. Earnest money forfieted by land owner
b. principal loan waived by bank
c. car was given to an assessee by his disciple
d. In terms of an agreement with the promoters, shares were allotted to the director
Value of gift of land was held as a receipt by the assessee in carrying on of his vocation
Whether sales discount, cash discount and rebates are benefit or perquisite?
No. Ever 10 per 1 offer is also not covered.
However following are covered:
How is the valuation of benefit/perquisite required to be carried out?
Valuation based on fair market value except:
i) Purchased - purchased price.
Manufacture - price that it charges to its customers.
What if the product used by a person (like, social media influencer) used for audio/video to speak about that product in social media. Whether it is benefit or perquisite?
Yes, If the product is retained with the person (like, social media influencer).
Whether reimbursement of out of pocket expense incurred by service provider in the course of rendering service is benefit/perquisite?
Case 1 :
Bill paid by Consultant and further reimbursed by the Client – 194R not applicable.
Case 2 :
Bill paid by Company and bill is in the name of consultant – 194R applicable.
Case 3 :
Bill paid by Company and bill is in the name of Company – 194R not applicable.
If there is a dealer conference to educate the dealers about the products of the company – Is it benefit/perquisite?
No , if the prime object is to educate dealers/ customers in the form of the following or similar aspects:
i) new product being launched
ii) discussion on how the product is better than others
iii) obtaining orders
iv) teaching sales techniques
v) addressing queries
vi) reconciliation of accounts
Yes - In the following cases
Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer/business conference.
i) Expenditure incurred for family members accompanying the person attending dealer/business conference
Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.
Section 194R provides that if the benefit/perquisite is in kind or partly in kind (and cash is not sufficient to meet TDS) then the person responsible for providing such benefit or perquisite is required to ensure that tax required to be deducted has been paid in respect of the benefit or perquisite, before releasing the benefit or perquisite. How can such person be satisfied that tax has been deposited?
Recipient would pay tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient & required to be reported in TDS return along with challan number.
In the alternative, the benefit provider may deduct the tax under section 194R of the Act and pay to the Government. The tax should be deducted after taking into account the fact the tax paid by him as TDS is also a benefit under section 194R of the Act. In the Form 26Q he will need to show it as tax deducted on benefit provided
How this limit of twenty thousand is to be computed for the Financial Year 2022-23?
i) Value of the benefit or perquisite triggering deduction under section 194R of the Act shall be counted from 1st April, 2022.
The benefit or perquisite which has been provided on or before 30th June 2022, would not be subjected to tax deduction under section 194R of the Act.