Guidelines on deduction of tax at source under Section 194R: CBDT

Circular no. 12 of 2022, dated 16-06-2022

The Finance Act, 2022 had inserted a new section 194R to the Income-tax Act, 1962 providing for deduction of tax at source (TDS) on benefit or perquisite in respect of business or profession. TDS under section 194R is applicable with effect from 01-07-2022.

To remove difficulties in implementing the provisions of section 194R, the Central Board of Direct Taxes (CBDT) has issued guidelines framing 10 questions and answers to give clarity on deduction of tax. The key take away from the guidelines are provided below:

1. No need to check if amount is taxable under section 28

Section 194R casts an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source. There is no further requirement to check whether the amount is taxable in the hands of the recipient or under which section it is taxable.

2. Provision applicable even if benefit or perquisite is paid in cash

There is no requirement that the benefit or perquisite must be in kind for section 194R to operate. The provisions of section 194R attract even in the situation where the benefit of or perquisite is paid wholly in cash.

3. Capital assets also covered

Many courts have held that benefits or perquisites are taxable even though they are in the nature of capital asset. Accordingly, capital asset like cars, land, etc. given as benefit or perquisite would be covered within the ambit of deduction of tax at source under section 194R.

4. Sales discount, cash discount, and rebates

No tax is required to be deducted under section 194R on sales discounts, cash discounts, and rebates allowed to customers.

5. Govt. entities are exempt

The provision of section 194R shall not apply if the benefit or perquisite is being provided to a Government entity that is not carrying on business or profession.

6. Valuation of benefit/perquisite

The board has clarified that the valuation of benefit/perquisite shall be based on fair market value of the benefit or perquisite. However, if deductor has purchased the benefit/perquisite before providing it to the recipient. In that case, the purchase price shall be the value for such benefit/perquisite.

Further, if the deductor manufactures such items then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.

7. GST shall not be included in the valuation of benefit/perquisite

The CBDT has clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R.

8. TDS on reimbursement cost incurred by service provider

The board has said the expenses incurred by service provider while rendering service is part of his business expenditure and deductible while computing total income. Thus if any expenses incurred by service provider are met by service recipient then the same shall be treated as benefit or prerequisite.

However, if the invoice has been obtained in name of service recipient and then the reimbursement made to service recipient will not be considered as benefit/perquisite for the purposes of section 194R.

9. Dealer conference – whether benefit/perquisite?

The following expenditure pertaining to deafer/business conference would be considered as benefit or prerequisite:

• • Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer/business conference.
  • 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.

10. How to compute threshold limit for FY 2022-23?

The provisions of section 194R are applicable with effect from 01-07-2022. The Board has clarified that threshold limit of Rs. 20,000 to trigger TDS under section 194R shall be counted from 01-04-2022.

Thus, if the aggregate value of the benefit or perquisite provided or likely to be provided exceeds Rs. 20,000 during the financial year 2022-23 (including the period up to 30th June 2022), the provision of section 194R shall apply. However, the benefit or perquisite which has been provided on or before 30-06-2022 would not be subjected to tax deduction under section 194R.

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