A complete guide on Section 194R TDS Provision and FAQs

Introduction

Section 194R TDS is a new section and a finance act introduced in the year 2022 on the 1st of July, under the Income Tax Act to provide the deduction of tax at source in respect of benefits or perks given to the residents. According to Section 194R TDS Provision, anybody in charge of giving a resident any benefit —whether convertible into money or not—associated with that resident’s operation of a company or practice must first make sure that tax at the rate of 10% has been deducted.

What is TDS (Tax Deducted at Source)?

The TDS idea was introduced with the intention of collecting tax at the source of revenue itself. TDS stands for Tax Deducted at source. According to this idea, a deductor who is required to make a payment of a certain nature to another person (deductee) must deduct tax at source and submit the money to the Central Government. Based on a TDS certificate, the deductee from whose income tax source deductions have been made is entitled to get credit for the deducted amount.

What is Section 194R TDS?

The Finance Bill 2022 has proposed a new TDS section that is 194R, in the Income Tax Act on 01.07.2022. This new Section 194R allows for tax to be deducted at source on benefits or perks given to the residents. If a resident receives perquisites worth less than INR 20,000 in total throughout the financial year, no tax deduction is allowed in this case. The provisions of this section do not apply to individuals or HUF (Hindu Undivided Family) whose annual revenue does not exceed INR 1 crore for businesses and INR 50 lakh for professions.

The purpose of introducing section 194R

It was observed by department that many companies claimed charges for business promotions by offering various gifts/ perks/ incentives to its dealers. For this reason the Income Tax Department has decided to introduce public with Section 194R.

Exceptions to Section 194R TDS Provisions

The recommendations have provided examples of various sales promotion scenarios in which TDS under Section 194R is not applicable.

• Customers are permitted to get sales discounts, cash discounts, and rebates.
• When certain units of a product are given away and particular units of the same product are purchased (for example – buy one, get one free).

The above exception of non-deduction of tax is not applicable in a situation of free samples.

FAQs for Section 194R TDS Provision

1. Who is liable to deduct tax under Section 194R?

Any person responsible for offering a benefit or perquisite, whether convertible into money or not, is required to ensure that the tax that must be deducted in response to such benefit or perquisite and has been done according to Section 194R so a resident or non-resident individual can be the deductor.

2. When is Section 194R tax deductible?

It takes several stages to provide a benefit or a perquisite to a resident. The stage at which tax deductions are made cannot be governed by a single rule. It has to be assured that the tax is deducted before the point of “providing” a benefit or is reached.

3. What is the rate of TDS under section 194R?

The person providing the benefit or perquisite must make sure that the tax has been deducted at a rate of 10% of the value or aggregate of the value of ‘such benefit or perquisite’. If the deductee is a resident, the rate cannot be further raised by the surcharge and health and education cess.

4. How to compute the value of benefit or perquisite for TDS under section 194R?

The CBDT has made it clear that the valuation would be based on the fair market worth, with the following exceptions:

Before providing benefits to the recipient, it gets purchased by the benefit or requirement provider. In that situation, the value of the advantage or perk would be included in the purchase price.

5. How can I deduct tax from benefit or perquisite

The deductor has to ensure that the recipient pays advance tax on its value if the benefit or perk is to be provided.

As an alternative, the benefit provider may pay TDS to the government according to Section 194R. (TDS to be considered as part of the benefit).

Suggested Read: New Provisions of TDS on Purchase of Goods