SECTION 194R OF INCOME TAX - TDS ON BUSINESS PERQUISITES OR BENEFITS - ANALYSIS

An amendment has been made in the Income Tax Act w.e.f 1st July,2022 introducing section 194R which provides for TDS on any benefits or perquisites provided in respect of business or profession.

Let us understand the section 194R

Any person who is responsible for providing any benefit or perquisite to any resident in the course of any business or profession is required to deduct tax at the rate of 10% before providing the benefits or perquisites.

1. Applicability:

   • Applicable to both individuals and entities providing benefits or perquisites in kind. However, for individuals, TDS is only applicable if turnover of business exceeds Rs.1 Cr during preceeding previous year.

   • The provision applies when the aggregate value of benefits or perquisites exceeds ₹20,000 during the financial year.

     
     

2. TDS Rate:

   • The TDS rate under Section 194R is 10% of the value of the benefit or perquisite provided.

     
     

3. Benefits/Perquisites which are Covered:

   • Non-monetary incentives such as goods, assets, or services.

   • It could also include discounts, reimbursements, or incentives like free tours, gifts, or sponsored events provided by businesses.

     
     

4. Deduction Responsibility:

   • The entity or individual providing the benefit/perquisite is responsible for deducting TDS.

   • The deductor must ensure that tax is deducted and deposited even when the benefit is not in the form of direct cash. In such cases, the provider might need to recover the tax amount from the recipient separately.

     
     

5. Reporting Compliance:

   • The deductor must file a TDS return in Form 26Q and issue a TDS certificate (Form 16A) to the recipient.

   • This amount is reflected in the recipient's Form 26AS for the relevant financial year.

     
     

Example:

Suppose a company provides free gifts to its distributors as a reward for meeting sales targets. The value of the free gifts qualifies as a business perquisite. Under Section 194R, the company must deduct 10% of the total value of gift as TDS under Section 194R before providing the gift.