New TDS Section 194R and benefit/perquisite of a business or profession

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New TDS Section 194R

Individual & HUF having Turnover is above Rs. 1,00,00,000 or Professional receipt is above Rs 50,00,000 in previous year 2021-22 assessment year 2022-23.

Union Budget 2022, a new TDS section 194R, has been proposed in the Finance Bill 2022, w.e.f. 01.07.2022.

This new section 194R requires deduction of tax at source @ 10%, by any person, providing any benefit or perquisite, exceeding Rs. 20,000 in value, in a year, to a resident, arising from the business or profession of such resident and such benefit or perquisite is in the nature of income falling under section 28(iv) of the Income-tax Act.

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Provisions u/s 194R-

The new TDS u/s 194R on Business Promotion Expenses shall be applicable as follows –

  • The TDS is applicable to Any Resident who is providing any benefit/perquisite to another Resident
  • The Benefit/Perquisite has to be in kind and arising from BP,
  • TDS should be deducted at 10% on the value or aggregate of the value of such benefit or perquisite:
  • TDS should be deducted before providing such benefit or perquisite
  • TDS is applicable even when cash is not sufficient for payment of the same
  • No TDS in case of benefit/perk per person is not more than Rs.20,000 in an FY
  • No TDS when the deductor is an individual/HUF in business/professional with turnover/receipts in business/professional below Rs. 1Cr./Rs.50 Lakhs.
  • This amendment will take effect from 1st July 2022.

The benefits or perquisites proposed to be covered by this new section 194R are those perks, benefits, amenities, or facilities, probably in kind, or in a combination of cash and kind, which a resident person enjoys, pursuant to, or in the exercise of his business or profession, in lieu of the regular consideration payable to him, in monetary terms, in the exercise of such business or profession. Such benefits or perquisites are taxable as business receipts u/s 28(iv) of the Income Tax Act.

Section 28 : The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,— (iv): the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.

The purpose for Introducing Section 194R:

It was observed by the department that many companies claimed expenses for business promotions by offering various gifts/ perks/ benefits to its dealers (on fulfillments of conditions of under agreement or as per prevalent norms/ tradition practice followed by over the years by the business entity) under section 37 of Income Tax Act 1961.

However, the majority of dealers did not declare the said gifts/ perks/ benefits under business income as required by sec 28 (iv) of Income Tax Act 1961. So to bring such gifts/ perks/ benefits received due to business connections by resident dealers TDS U/s 194R is introduced to track the undeclared income.

Read Also:- TDS Rates and Threshold Limit

Section No.Nature of PaymentMonetary Limit for DeductionPayer (Person making Payment)Payee (Receiver)Rate
194RBenefit or perquisite provided in cash or Kind. (gifts, perks or benefits)Above Rs. 20,000
Any person (Other Than Individual/HUF) And Individual/ HUF having Turnover above Rs.1,00,00,000 or professional Receipts above Rs. 50,00,000.Resident Person10%

Also, such gifts, perks, or benefits provided on some special occasions like festivals (Eg. Diwali sweets), marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession.

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