Purpose of Section 194R:
The Finance Act 2022 inserted a new Section 194R in the Income Tax Act, 1961 with effect from 01.07.2022.
The purpose of this section is companies are claiming the deductions as promotional expenses while offering various gifts, perks, perquisites, or benefits to its distributors, dealers etc for the purpose of evasion of tax payment.
Example:
For instance, an Bluestar A.C manufacturing company gave A/C as incentives to those channel partners who achieved a particular revenue target. The company included these as expenses in its profit and loss account and claimed an Income Tax benefit.
Who is Deducted the TDS:
As per the provision of section 194 TDS is required to deducted by business or profession persons (resident or non-resident) on any perquisite / benefit to a resident that arise out of business or profession
Types of Perquisites:
Under this section type of advantage or Prerequisites are cash or kind or partly in cash and partly in kind.
Rate of TDS:
As per section 194R of income tax TDS rate is 10% if the where the aggregate of the value of benefit or prerequisite exceeds 20,000 during the financial year (FY) to one beneficiary.
Exceptions to section 194R:
In the following Cases are not required to TDS
- Section 194R is not applicable where the aggregate of the value of benefit or prerequisite does not exceed Rs 20,000 during the financial year (FY) to one beneficiary.
- It is not applicable for an individual or Hindu Undivided Family (HUF) to deduct TDS where total sales do not exceed Rs 1 crore in case of business or Rs 50 lakh in case of the profession in the immediate preceding financial year.
Important Notes:
- TDS u/s 194R is to be deducted @ 10%, irrespective of whether the benefit or perquisite is taxable or not in the hands of the recipient.
- GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R.
- If the recipient is a non-resident, the tax shall be deducted under Section 195.
- It is clarified that no tax is required to be deducted under Section 194R of the Act on sales discount, cash discount and rebates allowed to customers.
- No TDS If benefits or perquisites are provided to a customer who does not engage in business or exercise of a profession.
- If an employer-employee relationship exists, Perquisites under Salary Head given by a company to its Directors and Employees, like ESOPs, Cars, Rent Free Accommodations, Free Tours, LTCs, Mobiles, Performance Linked Incentives etc. as the tax shall be deducted under Section 192.
- No TDS if benefits or perquisites are provided to a customer who does not engage in business or exercise of a profession.
