Section 194R Of Income Tax Act: Implementation Guidelines

Scope And Coverage Of Section 194R

• The deductor is not required to check whether the benefit or perquisite is taxable in the recipient's hands under any of the provisions of the Income Tax Act.
• There is no requirement to check whether the amount itself is taxable or not
• Section 194R of the ITA applies in all cases where the benefit or perquisite is:
  • Wholly in cash
  • Wholly in kind
  • Partly in cash and partly in kind
• Benefit or perquisite can also provide a capital asset (for example, car, land, etc.)
• Applicable on benefits or perquisites paid or credited on or after 1st July 2022

TDS Rate

As per section 194R of the Income Tax Act 1961, TDS should be deducted at 10% only if the total value of the gifts or perquisites given is more than INR 20,000 for every recipient during a financial year.

Sales Discounts, Cash Discounts, And Rebates

• Sales discounts, cash discounts, and rebates allowed to customers from the listed retail price represent a lesser realisation of the sale price itself. To that extent, the purchase price is also reduced. Logically, these are benefits, but to remove the potential difficulty for the seller, no TDS is deducted on sales discounts, cash discounts, or rebates allowed to customers.
• Freebies provided on purchases of some items (for example, one item free on purchase of four items) are not to be subjected to Section 194R
• However, Section 194R applies here:
  • When a person gives incentives (other than a discount or rebate) in cash or kind such as a car, television, computer, gold coin, mobile phone, etc.
  • Sponsoring a trip for the recipient and their relatives upon achieving specific targets.
  • Providing a free ticket for an event.
  • Providing free medical samples to doctors.

Valuation Of Perquisite Or Benefits 

The valuation would be the fair market price (FMV) of benefit/perquisite except in the following cases:

• If the provider has purchased the benefit/perquisite, then the purchase price shall be taken as the value for TDS purposes
• If the provider manufactures such items given, then the price that it charges to customers for such items shall be taken as the value for TDS purposes.
• Goods and Services Tax (GST) will not be included for valuation purposes

Social Media Influencer

As per the guidelines, determining if there is a benefit or not will depend on the facts of the case:

• If the product given to the social media influencer was returned, there is no benefit and, hence, no TDS u/s 194R
• However, if the product was retained, then it would be like a benefit or perquisite

Reimbursement Of Out-of-pocket Expenses 

• If any expenditure (the liability of the person carrying on business) is met by or reimbursed by some other person, then the same would be regarded as a benefit or perquisite for the person who had the primary liability of incurrence. For example, travel expenses reimbursed by the consultant’s client would be regarded as a benefit or perquisite liable for TDS.
• However, there is no requirement for TDS if travel bills are in the name of the client, paid by the consultant, and reimbursed by the client.

Dealers’ Conferences

• Guidelines mention that expenditure pertaining to dealer/business conferences will not be considered as a benefit or a perquisite if such conferences are held with the primary object of educating dealers/customers on the following:
  • Launch of a new product
  • Obtaining orders from dealers/ customers
  • Teaching new sales techniques to dealers
  • Addressing queries from dealers
  • Reconciliation of accounts

However, such a conference must not be like incentives/benefits to select dealers/customers who have achieved particular targets.

Also, expenses attributable to a leisure trip, leisure component for sponsoring family members or for priority stay or overstay are liable for TDS.

Benefit Or Perquisite In Cash Is Not Sufficient To Meet The TDS

Deductor satisfaction related to the tax being deposited when the benefit or perquisite is in kind or partly in kind and cash is not enough to meet the TDS

• Two options have been mentioned below;
  • The recipient may pay the tax in advance tax. The deductor may rely on a declaration provided by the recipient along with the copy of the advance tax challan or
  • The deductor should deduct tax after taking into account that the tax has been paid by him/her as TDS under Section 194R is also a benefit for the recipient (i.e. by Grossing up)

Computing Threshold Of Rs 20,000

• While Section 194R is applicable from July 1 2022, to check the threshold of Rs 20,000, include the benefit or perquisite provided on or before June 30, 2022
• No TDS is required to deduct on the amounts paid within the period from April 1, 2022, to June 30, 2022

Example 1: An individual is provided benefits of Rs 8,000 up to June 30, 2022. Furthermore, benefits provided on or after July 1, 2022, up to March 31, 2023, are Rs 15,000.

The TDS under Section 194R would be deducted Rs 15,000 as benefits provided up to June 30, 2022, and the threshold of Rs 20,000 for the deduction shall also be considered. However, no TDS will be applicable on Rs 8,000.

Example 2: An individual is provided benefits of Rs 22,000 up to June 30, 2022. In addition, benefits provided on or after July 1, 2022, up to March 31, 2023, are Rs 50,000.

The TDS under Section 194R shall be deducted from Rs 50,000. However, TDS on Rs 22,000 shall not deduct as the applicability of Section 194R is effective from July 1, 2022, onwards.

Example 3: An individual is provided the benefit of Rs 55,000 up to June 30, 2022. However, after this, no benefit is provided from July 1, 2022, up to March 31, 2023.

In this case, no TDS under Section 194R shall be deducted. It doesn’t matter if the benefits provided up to June 30, 2022,are more than the threshold of Rs 20,000.

Benefits Provided To Employees Of The Recipient Entity

The benefits or perquisites can be used by the owner, director or an employee of the recipient entity or their relatives who, in their individual capacity, may not be carrying on business or engaged in a profession.

TDS shall be deducted by the person in the name of the recipient entity. For example, a company may provide a free medicine sample to a doctor who is an employee of a hospital. The TDS under Section 194R is required to be deducted by the company in the hospital's hands.

Benefits Provided To Employees By The Employer

The employer (entity) shall treat this as a benefit or perquisite given to its employees under Section 17 and deduct tax under Section 192 of the ITA. 

The employer can seek credit of TDS  under Section 192 by furnishing its tax return. 

Benefits Provided To Consultant Of Company

The person providing the benefit or perquisite to a consultant of the entity may treat the entity as the beneficiary and deduct TDS under Section 194R. Then, such an entity can further deduct TDS under Section 194R for providing the same benefit or perquisite to the consultant. However, the person providing the benefit or perquisite at its option may also directly deduct the TDS of that consultant.

Inclusion Of Goods And Services Tax (GST)

GST is not included for valuation of benefit or perquisite for TDS under Section 194R.