[Opinion] Section 194R: Rocky Road ahead

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  • Last Updated on 4 July, 2022

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Section 194R

Ankita Chowdhry, Kashif Ali & Sweta Parameswaran – [2022] 140 taxmann.com 46 (Article)

Background

Finance Act, 2022, inserted a new section 194R to provide that any person responsible for providing any benefit or perquisite to a resident, is required to deduct tax at source (TDS) at the rate of 10% if the aggregate value of such benefit or perquisite exceeds INR 20,000 during a financial year (FY). It further provides that the benefit or perquisite, whether in cash or kind, should arise either from carrying on of business or exercising a profession, by such resident. The aforesaid section has been applicable from 1 July 2022.
Section 194R(2) of the Income-tax Act, 1961 (Act) empowers the Central Board of Direct Taxes (CBDT) to issue guidelines for removal of difficulties in giving effect to this provision. In exercise of the said powers, the CBDT has, vide Circular No. 12 of 2022 dated 16 June 2022 (the Circular) prescribed guidelines to remove difficulties that taxpayers would face while implementing or analysing section 194R of the Act.
While, the Circular has provided a number of clarifications, one of the most important ones is that it is not necessary for the person responsible for providing the ‘benefit or perquisite‘ to check the taxability of such benefit or perquisite in the hands of the recipient or the head of income under which it is taxed in the hands of the recipient.
In this regard, it is pertinent to note that the rationale of introduction of section 194R of the Act as explained in the memorandum to Finance Bill, 2022 and the budget speech thereof (discussed in ensuring paragraphs) indicated that the intent was to cover any ‘benefit or perquisite‘ falling within the scope of section 28(iv) of the Act.
However, given that the circular has overlooked the taxability in the hands of the recipient, it appears that the scope of section 194R of the Act has been widened by the Circular.
In this backdrop, this article attempts to analyze the interplay between section 194R and section 28(iv) of the Act.
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