Guidelines for TDS on Perquisites under section 194R
Guidelines for TDS on Perquisites under Section 194R
CBDT vide Circular No. 12/2022 dated 16.06.2022 issued detailed guidelines for removing difficulties for deduction of tax (TDS) as per the provision of section 194R of the Income-tax Act, 1961. This Circular contains guidelines to remove difficulties concerning Section 194R, which comes into effect on 1st July 2022. Section 194R mandates deduction of tax or TDS at a rate of 10% on benefit and/or perquisite provided to a resident. The present article briefs the Guidelines for TDS on Perquisites under Section 194R.
Synopsis of CBDT circular
The Central Board of Direct Taxes (CBDT) has issued guidelines to remove the difficulties in implementing the provisions of section 194R of the Income Tax Act. CBDT has framed 10 questions and answered them to give clarity on the deduction of tax at source. The guidelines are binding on income-tax authorities and the person providing benefit or perquisite.
Section 194R in the Income-tax Act, 1961
Finance Act 2022 inserted a new section 194R in the Income-tax Act, 1961 with effect from 1st July 2022. The new section requires deduction of tax at source at the rate of 10 percent by any person and provides any benefit or perquisite exceeding Rs.20,000 in a year to a resident which arises from the business or profession of such resident.
New Rate of TDS
As mentioned above, the new section mandates a person, who is responsible for providing any benefit or prerequisite to a resident, to deduct tax at source (TDS) at a rate of 10% of the value or aggregate of the value of such benefit or perquisite, before providing such benefit or perquisite.
Condition for Tax Deduction
The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business or from exercising a profession, by such resident.
This deduction is not required to be made if the value or aggregate of the value of the benefit or perquisite provided or likely to be provided to the resident during the financial year does not exceed Rs.20000.
Eligibility Criteria for Tax Deductor
The responsibility of tax deduction also does not apply to a person, being an Individual/Hindu undivided family (HUF) deductor, whose total sales / gross receipts / gross turnover from business does not exceed 1 crore rupees, or from profession does not exceed 50 lakh rupees, during the financial year immediately preceding the financial year in which such benefit or perquisite is provided by him.
Guidelines on Applicability of New TDS Provision
As mentioned above, The CBDT issued guidelines related to the applicability of new TDS provisions regarding benefits received in a business or profession.
- The perquisites can either be in cash, in-kind, or partly in both of these forms.
- The taxpayer does need to check the taxability of the sum in the hands of the recipient, and the nature of the asset given as benefit or prerequisite is not relevant
- The capital assets given as benefits or perquisites are covered within the scope of Section 194R of the Income-tax Act
- Section 194R shall apply to sellers giving incentives, other than discounts or rebates, which are in cash or kind e.g., car, TV, computers, gold coin, mobile phone, sponsored trips, free tickets, medicine samples to medical practitioners.
- CBDT clarified that Section 194R would apply to the distribution of free samples to the hospital for doctors receiving free samples of medicines while employed in a hospital. The hospital as an employer may treat such samples as a taxable perquisite for employees and deduct tax under Section 192. For those, the threshold of ₹20,000 has to be seen concerning the hospital.
- While for doctors working as consultants with a hospital and receiving free samples, TDS would ideally apply to the hospital first, which in turn would require to deduct of tax under Section 194R about consultant doctors.
- CBDT clarified that as an alternative to remove the difficulty, the original benefit or perquisite provider may directly deduct tax under Section 194R about the consultant doctor as a recipient.
- The government department made it clear that Section 194R will apply if the benefit or perquisite is provided to a government entity, like a government hospital, not carrying on business or profession.
- Apart from hospitals, CBDT also provided a breather on sales discounts, cash discounts and rebates allowed to customers by excluding them from the purview of Section 194R as their inclusion would put the seller into difficulties.