section 194r presentation

Missed filing your ITR?

Browse by topics.

• Income Tax e-Filing
• Last Date To File ITR For 2022-23
• Income Tax Slabs FY 2023-24
• Which Is Better: Old vs New Tax Regime For Salaried Employees?
• House Property
• Business, Professional & Freelance
• Which ITR Should I File?
• Income Tax Refunds
• Paying Tax Due
• Salary Income
• Capital Gains Income
• Other income sources
• Advance Tax
• Income Tax Notices

POPULAR ARTICLES

• Budget 2023 Highlights: PDF Download, Key Takeaways, Important Points
• Budget 2023 Expectations For Income Tax: 80C & 80D Limit Increase, Tax Slab Changes For Salaried Employees
• Budget 2022 Highlights: PDF Download, Key Takeaways, Important Points

RELATED ARTICLES

• Budget 2023: Full List of Cheaper and Costlier Items
• How to file ITR Online – Step by Step Guide to Efile Income Tax Return, FY 2021-22 (AY 2022-23)
• Which ITR Should I File? Types of ITR Forms for FY 2021-22, AY 2022-23 – All ITR Forms
• UAN Login, Portal Registration, Universal Account Number Activation & Status Check
• Income Tax Raid, Search and Seizure – What, When, How
• ITR U – What is ITR-U Form and How to File ITR-U

Analysis of Section 194R of the Income-tax Act, 1961

Updated on : Jul 18th, 2023

The Finance Act, 2022, introduced Section 194R, which pertains to the deduction of tax on benefits or perquisites in respect of businesses or professions.

Businesses, companies, or entities often extend multiple types of benefits and perquisites to their distributors, channel partners, agents, or dealers to incentivise and motivate them to promote further growth of a business. A few examples would include travel packages, gift cards or vouchers, products under incentive schemes or the usage of business assets, among others.

Purpose of Section 194R

The purpose of introducing the new Section 194R is to plug the possibility of tax revenue leakages (tax evasions) in businesses or professions. A few companies claimed expenses for business promotions while offering various gifts, perks, perquisites, or benefits to its distributors, dealers, or channel partners (on fulfilments of conditions of under agreement or as per prevalent norms/traditional practice followed over the years by the business entity) under Section 37 of Income-tax Act, 1961.

For instance, an electronics manufacturing company gave LCD televisions as incentives to those channel partners who achieved a particular revenue target. The company included these as expenses in its profit and loss account and claimed an Income Tax benefit.

The recipients do not report this in their income return because this particular incentive is in kind and not in cash. This leads to the furnishing of incorrect particulars of income. Ideally, such an incentive or benefit in kind should be disclosed as income under the Income-tax Act, 1961 (ITA).

As per Section 28 (iv) of the ITA, the value of any benefit or perquisite—whether convertible into money or not—arising from business or in a profession, is to be charged as business income in the hands of the recipient of such benefit or perquisite.

Now, under Section 194R, if a business gives its distributors or channel partners any such perquisites or incentives, which is partly in cash or kind, then they are required to deduct a TDS. In case the benefit is wholly in kind, the person providing such a benefit or perquisite is required to pay TDS on the value of such benefit or perquisites out of his own pocket.

So, the purpose of Section 194R is to widen the tax base and plug any scope of tax evasion.

To cite another example, in case a medical professional receives free samples, it has to be shown as a benefit or perquisites and is income. This is irrespective of the fact that the pharmaceutical company is using it as a sales promotion technique. The pharma company can claim a deduction for such a sales promotion. However, in the hands of the receiver, the promotion would be a taxable income, and TDS is required to be deducted by the pharma company on the same.

Scope of Section 194R

The TDS to be charged under Section 194R is at 10%, which will come into effect from July 1, 2022. It applies only to resident recipients (receiver of a benefit) of benefits or perquisites.

However, Section 194R is not applicable where the aggregate of the value of benefit or prerequisite does not exceed Rs 20,000 during the financial year (FY) to one beneficiary.

Also, it is not applicable for an individual or Hindu Undivided Family (HUF) to deduct TDS where total sales do not exceed Rs 1 crore in case of business or Rs 50 lakh in case of the profession in the immediate preceding financial year.

Section 194R: Nexus with Business or Profession

Any individual providing any benefit or perquisite to a resident, whether convertible into money or not, arising from business or the exercise of a profession by such resident shall—before providing such benefit or perquisite, as the case may be to such resident—ensure that tax has been deducted.

In simple terms, under Section 194R, the TDS applies to any resident who is providing any benefit or perquisite to another resident. The benefit has to be in kind or cash and could be arising from business promotions. 

Applicability of Section 194R

This section is applicable when any business, company or professional gives any perks, gift, incentive or any other benefit (monetary or non-monetary) in cash, kind, or partially in cash and kind to a person exceeding Rs.20,000 during the financial year.

Who should deduct TDS under Section 194R?

When a business, company or professional gives benefits or perquisites to an agent, dealer, channel partner, distributor or any other person during the financial year, the business, company or professional is liable to deduct TDS under Section 194R.

Non-applicability of TDS under Section 194R

• Section 194R does not apply to employees who receive benefits from their employers. Section 192 will apply to them. 
• When the recipient is a non-resident, the tax will be deducted under Section 195.
• When there is no business relationship, this section will not apply.

How to deduct TDS under Section 194R?

TDS should be deducted and paid by the company, business or professional who provides benefits or perquisites before giving such benefits or perquisites.

TDS certificate

The deductor will issue a quarterly TDS certificate to the deductee in Form 16A. The deductor can download Form 16A from the TRACES account, and the deductee can view it in their 26AS. The deductor liable to deduct tax under Section 194R should file quarterly returns in Form 26Q.

Frequently Asked Questions (FAQs)

Will section 194r be applicable in case of gifts, benefits, or perks received during special occasions such as festivals or a marriage ceremony.

No, Section 194R will be applicable only in the case of those benefits or perquisites that arise out of business or profession.

What is a TDS certificate?

TDS certificates include Form 16, Form 16A, Form 16B, and Form 16C. A person deducting TDS has to issue these certificates to the assessee from whose income tax was deducted while making a payment. 

If the benefit given is non-monetary, how to calculate its price for tax deduction? 

The price of a non-monetary benefit or perquisite should be calculated based on the fair market value of such products.

Will discounts, cash discounts and rebates be considered benefits or perquisites under Section 194R?

No, discounts and rebates will be reduced from the sale price. Thus, they are not treated as benefits or perquisites.

Is Section 194R applicable to employees? 

No, Section 194R does not apply to benefits and perquisites given to employees since TDS on the same will be deducted under Section 192 of the Income Tax Act.

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company Policy Terms of use

Data Center

SSL Certified Site

128-bit encryption

InCorp Advisory

Company Registration In India

Section 194R – Take A Dive Into The Ocean Of 194R

July 1, 2022 by InCorp Advisory

Gone are the days when one felt that Section 195 was a mind-numbing T (e) D (iou) S provision. Two years ago, when one thought that 194Q was the largest sea, now we plunged into the ocean of Section 194R and 194S.

Section 194R of the Income Tax Act, 1961 was first introduced in the Finance Act 2022 and the Central Board of Direct Taxes (CBDT) published certain guidelines dated 16.06.2022 to enable effective implementation of the provision. Section 194R regulates the taxability on benefits/perquisites arising to any resident from business or exercise of profession.

We have detailed the key principles and the objective of the Revenue department for inserting Section 194R.

Table Of Contents

Nature Of Income – Any Benefit/Perquisite Provided To A Resident Nature Of Relationship – Other Than “Employer-Employee Relationship” Benefit/Perquisite Provider And Receiver Chargeability Of The Section 194R Key Takeaways Implications Of Section 194R Under Special Case Scenarios Ramifications Of Section 194R Why Choose Incorp?

1. Nature of income – Any benefit/perquisite provided to a resident

By itself it can be inferred that “any benefit/perquisite” enlarges the scope of this provision to a range of transactions. The primary checkpoint before applying section 194R is that the benefit/perquisite is provided to a resident  and arises from business or exercise of profession by said resident.

Case Study 1.1

Mr. X runs a trading business in the garment industry. He provides various incentives to its agents to boost sale targets. During FY 2022-23, Mr. X provides free tickets for an event to Mr. A- its resident agent with the highest turnover. Does this benefit/perquisite come under the purview of section 194R?

Yes. There is a benefit/perquisite (free tickets for an event) provided by a person (Mr. X) to a resident (Mr. A) on account of business or exercise of profession carried on by such resident. Therefore, it can be concluded that the benefit provided to him is on account of business or exercise of profession by Mr. A to Mr. X.

Case Study 1.2

Company XYZ is a trader in the automobile industry that manufacturers and sells motor vehicles. It has recently launched an electric vehicle. It provides a free test drive to its prospective customers. Does this benefit/perquisite come under the purview of section 194R?

No. Free test drive does not arise on account of business or exercise of profession. The customers are end consumers of the motor vehicle and do not engage in any business or profession to avail such benefit. Therefore, any benefit provided to end consumers do not fall under purview of 194R.

2. Nature of relationship – Other than “employer-employee relationship”

Another interpretation made from the provisions of the section as well as the guidelines issued by CBDT is that Section 194R targets to regulate the Benefits/ perquisites provided in other than an “employer-employer relationship”. Benefits/perquisite provided in an employer-employee relationship are already governed by the provisions of Section 17 and corresponding TDS Section 192 of the Income Tax Act.

Case Study 2

Company ABC is a pharmaceutical company. It has administered a new drug and to obtain recognition it distributes free samples to Dr. S a medical practitioner. Does this benefit/perquisite come under the purview of section 194R if:

• Dr. S is an employee at XYZ Private Hospital.
• Dr. S is a consultant at XYZ Private Hospital.

Situation I – there are two tranches of benefits/perquisites provided.

• Tranche A : Company ABC and XYZ Private Hospital = other than “employer-employee relationship”. Therefore, 194R is attracted.
• Tranche B : XYZ Private Hospital and Dr. S = “employer-employee relationship”. Here section 192 is attracted instead of 194R.

Situation II – the two tranches of benefits/perquisites provided constitutes to other than “employer-employee relationship” only. Therefore, 194R is attracted to both tranches.

Note: In the above case scenarios, if the benefit/perquisite is provided to a government entity not carrying out business or profession (eg: Government hospital) then no TDS under section 194R.

Related Read: TDS On Purchase Of Goods W.E.F 01.07.2021

CLICK HERE!

3. Benefit/Perquisite provider and receiver

As per the provisions laid down in the Income Tax Act , the provider may be a resident or a non-resident, but the receiver must be a resident. The implications of the same are tabulated hereunder:

Note: If the benefit/perquisite provider is an individual/HUF whose gross turnover from business < Rs.1 crore or receipts from profession < Rs. 50lakhs then, no tax deduction under section 194R .

* Practical difficulty: In case of a provider being a non-resident, giving benefit/perquisite to a resident will have to carry out excessive compliance procedures with the tax laws of India to provide certain benefits/perquisites.  

4. Chargeability of the section 194R

Note: Two exceptional cases to derive value of benefit/perquisite where:

• Benefit/perquisite is specifically purchased to provide benefit/perquisite = Purchase price
• Benefit/perquisite is manufactured = Price charged to customers

Case Study 4.1

Ms. B is a social media influencer who promotes various brands to its followers. Company DEF is a luxurious handbag brand who wishes to market its product through influencer marketing. Company sends its handbags to Ms. B to promote the brand. What are the implications under section 194R?

The nature of benefit provided by the company is wholly in kind (supply of handbags). Therefore, the implications are stated hereunder if:

• Handbags sent on return basis – No tax deduction u/s 194R.
• Handbags are not sent on return basis – Tax deduction u/s 194R @10%.

Case Study 4.2

Company MNO is a smartphone manufacturing company having numerous agents. It is company policy to provide various benefits/perquisites to its agents on achieving pre-determined sales targets. Determine the value of benefit/perquisite provided by the company for achievement of targets if the top sales agent receives the following

a. Painting

b. Car purchased by the company.

c. Smartphones manufactured by the company.

Practical difficulty: FMV of the benefit/perquisite may not be easily available due to the nature of benefit/perquisite provided. For instance – redeemable coupons/points at a future date. Moreover, in case of a newly manufactured product where no market has been established, it may be difficult to compute the sales price chargeable to the customers.

Case Study 4.3

Chargeability of Section 194R under various scenarios:

5. Key Takeaways

6. Implications of Section 194R under Special Case Scenarios

Sales discount, cash discount and rebates allowed to customers.

As the provision states tax on “any benefit/perquisite”, sales discount, cash discount and rebates also come under the purview of 194R. However, guidelines issued by CBDT specifically state that no tax is required to be deducted under 194R in case of sales discount, cash discount and rebates allowed to customers.

Reimbursement of expenditure

A. Making payment on behalf of a party and then being reimbursed for the same amount is a routine transaction carried out by a variety of industries , especially professional service providers . Principles of reimbursement of expenditure are stated hereunder :

• Backing by actual third-party documentation.
• Form & substance should clearly evidence that the expenditure is of the payer and is being reimbursed to the payee.
• Evaluate the nature of expenditure incurred and whether the same are to be reimbursed .

B. One can say that the implications of section 194R are manifold and inconceivable. This realisation is encountered when “reimbursement of expenditure” come under purview of “any benefit/perquisite”. Guidelines issued by CBDT give further clarifications on application of 194R in case of reimbursement of expenditure.

Case Study – in line with CBDT guidelines

Mr. T is the auditor of Company DEF having branches all over India. As per assurance engagement, Mr. T travels to different cities to audit the branches. Mr. T incurs certain lodging and boarding expenditure that are later reimbursed by Company DEF. What are the implications of section 194R?

* It is important to note that the expenditure that are re-imbursed are incurred wholly and exclusively to provide assurance services by Mr. T.

Business conferences held for dealers/agents

7. ramifications of section 194r.

• GST implications on free supply, reimbursement of expenditure needs to be considered.
• 194R opens a pandora’s box for the recipient, if such benefits/perquisites are not recorded in the books of account resulting in non-disclosure of income along with adverse tax implications.

Why Choose Incorp?

At Incorp, we have the expertise and skills to guide you through the entire TDS and TCS processes. We are here to ensure peace of mind, from setting up your company to staying compliant and managing your taxes on time with ease.

Need help with the latest provisions of TDS?

Related Posts

For Business Enquiry

+91 7738066622

For Career Enquiry

+91 8655857164

[email protected]

[email protected]

2nd floor, Gita Building, Sion Circle, Sion (East), Mumbai - 400022

• [email protected]
• +91-99990 43311

Analysis on TDS Benefits / Perquisites - Section-194R of Income Tax Act

• Jun, 27 2022
• Direct Taxation
• By ASC Group

Businesses usually pass on certain benefits and perquisites to their stakeholders that are usually not traceable. However, the businesses take a deduction of the same as business expenditure. In order to streamline this activity, the government came up with a new TDS Section 194R in Budget 2022. Section 194R of the Income Tax Act will be effective from 1 st July 2022.

What is TDS Section 194R?

Under TDS Section 194R  shall be required to be deducted @ 10% by any person who provides any benefit or perquisite in excess of Rs. 20,000 to a resident, arising from the business or profession of such resident. TDS shall be deducted irrespective of whether the benefit or perquisite is convertible into money or not.

In case the benefit or perquisite is provided wholly in kind or partly in cash and partly in kind, still, the TDS shall be deducted from the entire value. If the cash portion is not sufficient to meet the TDS liability, then the person responsible for providing the benefit shall, before providing such benefit or perquisite, ensure that the tax required to be deducted has been paid in respect of such benefit or perquisite.

Non-Applicability of TDS Section 194R

TDS u/s 194R is not required to be deducted in the following cases:

• When the aggregate value of benefits and perquisites provided or likely to be provided to a resident during the financial year does not exceed Rs. 20,000 or,
• If the total sales, turnover or gross receipts of the Individual / HUF deductor providing the benefit or the perquisite does not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in the case of the profession during the financial year immediately preceding the financial year in which such benefit or perquisite is provided.

The CBDT vide Circular No. 12 of 2022 dated 16 th June 2022 released certain guidelines clarifying the implications of TDS under Section 194R . Let’s understand these guidelines in detail.

Guidelines of CBDT for Section 194R

The following questions were addressed in the CBDT guidelines on TDS u/s 194R:

Question 1. Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under section 28(iv) of the Act, before deducting tax u/s 194R?

Answer: No. Section 194R only requires the person to deduct TDS @ 10%. It does not require the person to check whether the benefit or perquisite is taxable in the hands of the recipient or not. Income can also be taxed under other sections like Section 41(1) etc.

Question 2. Is it necessary that the benefit or perquisite must be in-kind under Section194R?

Answer: TDS under section 194R is required to be deducted whether the benefit or perquisite is in cash or in kind. Further, as per the provisions, the benefit or perquisite can also be partly in cash and partly in kind.

Question 3. Is there any requirement to deduct tax u/s 194R of the Act, when the benefit or perquisite is in the form of a capital asset?

Answer: The taxability of the benefit or perquisite in the hands of the recipient does not matter. Further, the guidelines highlighted various judgments where the courts held that the benefits or perquisites shall be taxable even if they are in the nature of the capital asset.

Question 4: Whether sales discounts, cash discounts, and rebates are benefits or perquisites under Section194R?

Answer: TDS Section 194R  shall not be applicable to sales discounts, cash discounts, and rebates provided by the sellers to the customers. Further, TDS shall be deducted in the name of the recipient entity irrespective of who uses the benefit or perquisite.

It has also been clarified that the provisions of TDS Section 194R shall not apply to the benefits or perquisites provided to a government entity that is not carrying any business or profession, such as government hospitals.

Question 5. How is the valuation of benefit/perquisite required to be carried out under Section194R?

Answer: The benefit/perquisite should be valued on the basis of fair market value except in the following cases:

• If the provider has purchased such benefit/perquisite before providing it to the recipient, then the purchase price should be the value of the benefit/perquisite.
• If the provider manufactures such benefit/perquisite, then the price charged by the such manufacturer from the customers should be the value of such benefit/perquisite.

Further, GST should not be included in determining such value.

Question 6: Sometimes, a social media influencer is given a product of a manufacturing company so that he can use that product and make audio/video to speak about that product on social media. Is this product given to such influencers a benefit or perquisite?

Answer: If the product is returned to such a manufacturing company after providing the service, then it should not be treated as a benefit/perquisite. However, where such a product is retained by such social media influencers, then it should be treated as a benefit/perquisite and TDS shall be deducted accordingly.

Question 7: Whether reimbursement of the out-of-pocket expenses incurred by the service provider in the course of rendering service is benefit/perquisite?

Answer: Any expenditure that is a liability of the person carrying on the business, if met by another person is the benefit or perquisite provided by the second person to the person carrying on the business. It can be understood with a simple example:

Suppose a consultant is providing certain services to Mr. X. He incurs certain expenditures in relation to providing such services. Therefore, the  applicability of TDS u/s 194R is as follows:

• If invoices for the expenses are in name of the consultant and are directly paid/reimbursed by Mr. X: Liable to TDS u/s 194R
• If invoices for the expenses are in name of Mr. X, however, paid by the consultant and later reimbursed by Mr. X: Not liable to TDS u/s 194R

Question 8: If there is a dealer conference to educate the dealers about the products of the company - Is it benefit/perquisite?

Answer: Normally it shouldn’t be considered as a benefit/prerequisite for the purpose of TDS Section 194R  as the prime object of such conference is:

• promote a new product being launched
• discussion as to how the product is better than others
• obtaining orders
• teaching sales techniques
• addressing queries
• reconciliation of accounts

However, it should be ensured that the conference is not only for those dealers or customers who have achieved specified targets. Also, in the following cases, liability to deduct TDS u/s 194R shall get attracted:

• The expense incurred for leisure trips
• Expenditure incurred for family members accompanying the person attending the conference
• Expenditure on participants of dealer/business conference for days prior and beyond the dates of such conference.

Question 9: As per TDS Section 194R, if the benefit/perquisite is in kind or partly in kind (and cash is not sufficient to meet TDS) then the person responsible for providing such benefit or perquisite shall ensure that tax required to be deducted has been paid in respect of the benefit or perquisite, before releasing the benefit or perquisite. How can such a person be satisfied that tax has been deposited?

Answer: The law requires that in the above case, the person providing the benefit/perquisite shall ensure that the tax required to be deducted has been paid by the recipient. Such recipients should pay the advance tax in relation to such benefit/perquisite. The tax deductor can rely on the declaration and a copy of the challan for advance tax payment provided by the recipient.

Alternatively, the provider of benefits may also deduct the tax and pay to the government where the tax amount paid by such benefit provider should also be considered as a benefit provided u/s 194R.

Question 10. Section 194R would come into effect from the 1 st July 2022. The second proviso to section 194R(1) of the Act provides that the provision of this section does not apply where the value or aggregate of the value of the benefit or perquisite provided or likely to be provided to a resident during the financial year does not exceed Rs. 20,000. It is not clear how this limit of Rs. 20,000 is to be computed for the FY 2022-23?

Answer: The value or aggregate value of the benefit provided during the FY 2022-23 should be counted from 1 st April 2022. Therefore, if the value or aggregate value of the benefit/perquisite provided exceeds Rs. 20,000 (including for the period till 30 th June 2022), then TDS section 194R shall be applicable for benefits/perquisites provided on/after 1 st July 2022. Further, the benefit/perquisite provided on or before 30 th June 2022 would not be subjected to TDS u/s 194R. Let’s understand this with a simple example:

Practical Example for TDS u/s 194R

Suppose, Mr. A regularly provides benefits to his consultant. Until 30 th June 2022, the total value of benefits provided amounted to Rs. 15,000. After 1 st July 2022, Mr. A provided a further benefit of Rs. 10,000 to the consultant. Therefore, TDS u/s 194R shall become applicable as the limit of Rs. 20,000 has been exceeded. However, TDS should be deducted only on Rs. 10,000 and not on the benefits of Rs. 15,000 paid before 30 th June as it has been specifically excluded. Even if the benefits before 30 th June would have been Rs. 25,000, still it won’t be subject to TDS. Only the amount paid on or after 1 st July 2022 would be subject to TDS under section 194R .

Following were the implications of the newly applicable TDS Section 194R . In case of any queries, please feel free to contact the ASC Group .

Also, Read:  Section 206AB and 206CCA – Compliance Check Functionality of Income Tax

• TDS Benefits
• Section-194R
• Income Tax Act
• Income Tax Act Analysis. Guidelines of CBDT for Section 194R
• What is TDS Section 194R
• Non-Applicability of Section 194R

Leave a Reply

Your email address will not be published. Required fields are marked *

gst registration

Revised procedure for nil or lower tds certificates, setting up unit in ifsc, taxation of business trust, procedure for closure of liaison office project office or branch office in india, non residents can e file form 10f without pan, key recommendation of 52nd gst council meeting.

Need more information on any of our services?

Support & Downloads

Quisque actraqum nunc no dolor sit ametaugue dolor. Lorem ipsum dolor sit amet, consyect etur adipiscing elit.

Contact Info

All about the new TDS section 194R

Introduction to tds 194r - tds on business promotion expenditure.

• Introduction

Provisions u/s 194R of Income Tax Act

Guidelines on applicability of new tds u/s 194r.

• Different scenarios of TDS u/s 194R

Additional guidelines

Introduction to tds 194r.

The Finance Bill 2022 introduced a new TDS section 194R to the Income Tax Act, 1961 according to which any benefit or perquisites given on behalf of a Business or Profession are liable for TDS deduction. This will come into effect from 1st July 2022.

Earlier, the perquisites/benefits given to service providers in terms of business or profession were not being accounted for as it was not under the purview of TDS. Now, with the introduction of 194R, even such benefits given in any form are considered for TDS deduction.

For example, a social media influencer who is given certain products of the company for promotional activity. Earlier, even if the product was retained by the influencer after the activity, the benefit was out of tax. But, now, with 194R, such benefits will be taxed in the hands of the influencer.

Any person or entity who provides any form of benefit/prerequisite to another resident and the benefit value exceeds Rs 20000 in a year will be responsible to deduct TDS u/s 194R.

The tax will have to be deducted at a rate of 10% of the value of the benefits provided.

If the deductor is an individual or HUF, whose total sales/gross receipt/gross turnover of business/profession is below Rs 1 Cr / Rs 50 Lakhs (resp.), in such a case, the deductor does not have to deduct TDS.

The benefit/perquisite may or may not be convertible into cash, but if it arises from carrying out business or a profession, then TDS deduction is a must.

No TDS to be deducted, if the benefit or perk does not exceed Rs 20,000 per person in a financial year.

The guidelines are as under:

• There is no requirement on the part of the deductor to check whether the amount of benefit or perquisite will be taxable u/s 28(iv), in the hands of the recipient. Whether or not the amount is taxable in the hands of the recipient, the deductor has to deduct tax.
• It is not necessary that the benefit/prerequisite has to be in kind. It can be wholly in cash or wholly in kind or partly in cash and partly in kind.
• TDS u/s 194R has to be made even if the benefit/prerequisite is in the nature of Capital assets like car, land, etc.
• It is clarified that TDS u/s 194R need not be made on sales discount, cash discount and rebates allowed to customers. However, TDS will be applicable on free samples.
• Also, in cases where the director or employee or his relatives enjoy the benefit given to an entity, TDS should be made in the name of the entity.

For example, free medicine samples may be provided by a company to a doctor who is an employee of a hospital. The TDS under section 194R of the Act is required to be deducted by the company in the hands of the hospital as the benefit/prerequisite is provided to the doctor on account of him being the employee of the hospital.

• The benefit/perquisite provider has purchased the benefit/prerequisite before providing it to the recipient. In that case, the purchase price shall be the value for such benefit/perquisite
• The benefit/perquisite provider manufactures such items given as benefit/prerequisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite

GST will not be included for the purpose of valuation

• When products are given to social media influencers by the manufacturer, to speak about the product, and the product is retained by them, then TDS u/s 194R will have to be made. However, if the product is returned to the manufacturer, then TDS will not be applicable.
• In case of reimbursement of expenses incurred by the service provider, TDS u/s 194R will be applicable. However, if the invoice for the expenses is the name of the service recipient, then TDS u/s 194R will not be applicable.
• The expenditure pertaining to a dealer/business conference would not be considered a benefit/prerequisite for the purposes of section 194R of the Act in a case where a dealer/business conference is held with the prime objective to educate dealers/customers.
• Section 194R requires that if the benefit/perquisite is in kind or partly in kind, and cash is not sufficient to meet TDS, then the provider of the benefit/perquisite has to ensure that the tax relating to it has been paid, before releasing the benefit. For this purpose, the deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient. The same would be required to be reported in form 26Q along with the challan number.
• Alternatively, the deductor may deduct the tax u/s 194R, in which case the TDS made will also be considered as a benefit. This will also be required to be reported in form 26Q.
• For the purpose of determining the threshold of twenty thousand rupees, the aggregate value of the benefit will have to be considered from 1st April 2022, even though section 194R comes into force from 1st July 2022.
• Any benefit provided up to 30th June 2022 will not be subject to TDS, but will only be considered for the purpose of determining the threshold.

For example, benefit provided up to 30th June 2022 is Rs.40000 and the benefit provided on 6th July is Rs.10000. In this case, TDS will be made on the amount of Rs.10000 on 6th July, since the aggregate value from 1st April has exceeded Rs.20000. The amount of Rs.40000 will not be subject to TDS even though it crosses the threshold of Rs.20000, since it is provided prior to 1st July 2022.

What are the different scenarios of TDS u/s 194R?

• When external distributors of a biscuit company exceed their sales target, a mobile phone of Rs.36000 is given to the distributor as a gift, and a total TDS amount of Rs.3600 is to be deducted by the biscuit company.
• Safety pin manufacturing company gives its employee a bonus of Rs.10000 for being a champion in an internal safety standards event, TDS amount of Rs.1000 is to be deducted and paid to the government.
• A car modification company gives a free car stereo to its employee for bringing in 10 new customers in a particular month. If the cost of the stereo is at Rs.25000, the TDS amount of Rs.2500 is to be recorded and submitted.

In addition to the above guidelines, CBDT has issued some more guidelines to remove the difficulties faced by the stakeholders vide Circular No. 18 of 2022 dated 13 th September 2022. The guidelines are produced below:

• Waiver or settlement of loan is considered as benefit/perquisite to the borrower. However, in order to remove difficulties, it is clarified that one time loan settlement with borrowers or waiver of loan granted on reaching settlement with borrowers by the following Institutions shall not be subjected to TDS u/s 194R:
• Public Financial Institution as defined in clause (72) of section 2 of the Companies Act 2013
• Scheduled Bank as defined in clause (ii) of the Explanation to clause (viia) of subsection (1) of section 36 of the Income Tax Act
• Cooperative bank (other than a primary agricultural credit society) as defined III the Explanation to sub-section (4) of section 80P of the Income Tax Act
• Primary co-operative Agricultural and Rural Development Bank as defined III the Explanation to sub-section (4) of section 80P of the Income Tax Act
• State Financial Corporation being a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporation Act, 1951
• State Industrial Investment Corporation being a Government company within the meaning of sub-section (45) of section 2 of the Companies Act 2013, engaged in the business of providing long-term finance for industrial projects
• Deposit taking Non-Banking Financial Company as defined III clause (e) of the Explanation 4 to section 43B of the Income Tax Act
• Systemically Important Non-deposit Taking Non-Banking Financial Company as defined in clause (g) of the Explanation 4 to section 43B of the Income Tax Act
• Public company engaged in providing long term finance for construction or purchase of houses in India for residential purpose and which is registered in accordance with the guidelines/direction issued by the National Housing Bank formed under National Housing Bank Act 1987
• Asset Reconstruction Companies registered under section 3 of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act 2002
• Where the expenses were incurred by the service provider on behalf of the service recipient, and the expenses subsequently reimbursed by the recipient, it was clarified that TDS u/s 194R will apply. It is now further clarified that, if the expense is incurred by the service provider as a ‘Pure Agent’ as per the GST Act, and the same is reimbursed by the recipient, it will not be treated as benefit/perquisite for the purpose of Section 194R.
• Vide CBDT Circular No. 715 dated 8 th August 1995, it was clarified that TDS u/s 194C and 194J should be made from gross amount of the bill including reimbursement.

Further it is clarified that, if the out of pocket expenses (reimbursement) is already part of the consideration in the bill on which tax is deducted under relevant sections, other than Section 194R, there will be no further liability for TDS u/s 194R, since the reimbursement would have already suffered TDS u/s 194C or 194J as the case may be.

• Expenses on dealer conferences to educate dealers are not considered as benefit/perquisite as per clarification issued vide Circular No.12 of 2022. It is further clarified that all dealers need not be invited to such conference. Any expenses incurred for the period prior to and after the conference will be treated as benefit/perquisite. However a day prior and after will be given relaxation.

If the benefit/perquisite is provided in a group activity and it is difficult to assign the benefit to each participant, the service provider may, at his option, not claim such expense while computing his Total Income. In such case he will not be required to deduct tax u/s 194R.

• When a person gifts a depreciable asset to another person, and has deducted tax u/s 194R in respect of it, the recipient can claim depreciation on the said asset while computing his income under the head ‘Profits and gains of business or profession’.
• The provisions of Section 194R will not be applicable on any benefit/perquisite provided by an organization in scope of The United Nations (Privileges and Immunity Act) 1947, an international organization whose income is exempt under specific Act of Parliament (such as the Asian Development Bank Act 1966), an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign state.
• It is clarified that issuance of bonus shares or right shares by a company in which public are substantially interested (a Public Company) will not be subject to tax deduction u/s 194R, if bonus shares are issued to all shareholders or right shares are offered to all shareholders.

These practices allow to reduce tax leakage as there are wide transactions which are difficult to capture. These figured up to 50% of unaccounted revenue in TDS. Social media influencers and doctors are the foremost to watch out for this new bill but are made for all citizens of India and for the benefit of all.

This post on the new TDS section 194R has come to an end. Share your views and opinions with us in the comment section below.

Related Posts

TRACES registration process [New] – with screenshots

Online verification of TDS certificate Using Form 26AS

Form 15G and Form 15H: Myths and Facts

Home » Blog » [FAQs] Section 194R of the Income-tax Act | TDS on Benefit or Perquisite

[FAQs] Section 194R of the Income-tax Act | TDS on Benefit or Perquisite

• Blog | Income Tax |
• 14 Min Read
• Last Updated on 15 October, 2022

Recent Posts

Blog, Income Tax, News

Standard Deduction u/s Section 24(a) Cannot Be Claimed If Income is Subject to Application u/s 11 | ITAT

Blog, Insolvency and Bankruptcy Code, News

IBBI Proposes that RPs Must Conduct Monthly Meetings of CoC to Review Work of the CIRP

Latest from taxmann.

The Finance Act, 2022 introduced a new Section 194R under the Income-tax Act to provide for deduction of tax at source in respect of benefit or perquisite provided to a resident person.

Let’s understand the law on Section 194R.

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

Any person responsible for providing any benefit or perquisite, whether convertible into money or not, is required to ensure that the tax required to be deducted has been deducted in respect of such benefit or perquisite under Section 194R. The deductor can be a resident or a non-resident person.

It is to be noted that this provision is applicable with effect from 01-07-2022. Thus, the benefit or perquisite which has been provided on or before 30-06-2022, would not be subjected to tax deduction under this provision.

However, this provision shall not apply to an individual or a HUF whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of the profession during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.

2. What is meant by ‘person responsible for providing’ benefit or perquisite?

Explanation to Section 194R provides that the expression ‘person responsible for providing’ means the person providing such benefit or perquisite, or in the case of a company, the company itself, including the principal officer thereof.

The definition of ‘person responsible for paying’ as provided in Section 204 will not apply for the purposes of Section 194R. It means a person who has agreed to provide the benefit or perquisite and makes payment for the same to a third party shall be liable for deduction of tax and not the third party who actually provides or delivers the benefit or perquisite after accepting payment from the person who agrees to provide it. For example , a company agrees to arrange foreign tours for its dealers and distributors/agents who achieve specific targets. It is the company that has to comply with Section 194R, not the tour operator/hotels/airlines who, after accepting payment from the company, delivers the agreed/promised foreign tour to the dealers/distributors/accounts.

3. Who is a deductee for Section 194R?

Tax is required to be deducted under this provision if the benefit or perquisite is provided to a resident person and it is arising from business or the exercise of a profession by such resident.

However, in the following situations, the tax shall not be deducted under this provision:

• If an employer-employee relationship exists, the tax shall be deducted under Section 192;
• If the recipient is a non-resident, the tax shall be deducted under Section 195;
• If the benefits or perquisites do not have a connection with the business or profession of the resident recipient/deductee;
• If benefits or perquisites are provided to a customer who does not engage in business or exercise of a profession.

For example , if a business entity gifts valuable items, cars, etc., to its resident customers, no tax shall be deducted under Section 194R if a resident customer is not carrying on any business or profession.

4. When is tax deducted under Section 194R?

The tax shall be deducted before providing benefit or perquisite to the resident person. There can be several stages in providing benefit/perquisite to the resident recipient. There cannot be one rule to determine the stage at which tax shall be deducted. It has to be understood in the context of the particular benefit or perquisite that is provided to the recipient. Before the point of ‘providing’ of benefit or perquisite is reached, it has to be ensured that tax is deducted.

For example , a company agrees to provide foreign tours to its dealers/distributors who achieve the target. The following stages are possible in the delivery of promised foreign tour:

• A provision is made in the accounts of the provider-company for the estimated cost of foreign tours to those dealers/distributors who achieved the target as of balance sheet date;
• The dealer/distributor intimates the foreign destination he wants to proceed to and date when he wants to do so;
• The provider-company makes payment to the tour operator and books the foreign tour;
• The tickets are then handed over/emailed to the dealer/distributor;
• Departure of dealer/distributor to a foreign destination.

In the above example, it seems prudent to deduct tax on reaching Stage (d): The tickets are handed over to dealer/distributor or emailed to him:

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

The person providing the benefit or perquisite has to ensure that tax has been deducted at the rate of 10% of the value or aggregate of the value of ‘such benefit or perquisite’. The rate shall not be further increased by surcharge and health & education cess as the deductee/recipient is a resident.

If the deductee does not furnish his PAN to the deductor, the tax shall be deducted at the rate prescribed under Section 206AA. However, if such deductee has not furnished the return of income for a specified period, the tax shall be deducted at the rate prescribed under Section 206AB. Where both the provision of Section 206AA and Section 206AB are applicable, that is, the deductee has neither furnished his PAN to the deductor nor has he furnished his return of income for the specified period, the tax shall be deducted at the rates provided in section 206AA or section 206AB, whichever is higher .

The assessee shall have no option to apply for a certificate of lower deduction or nil deduction under this provision, even if his estimated tax liability justifies such certificate. Similarly, the payee cannot plead for non-deduction of tax based on self-declaration in Form 15G or Form 15H.

6. What is the threshold limit for TDS under Section 194R?

The tax shall be deducted under this provision if the value or aggregate of the value of the benefit or perquisite provided or likely to be provided during the financial year exceeds Rs. 20,000. In such a situation, the tax will be deducted on the entire value of benefit or perquisite and not merely the excess of Rs. 20,000.

The CBDT has clarified that since the threshold of Rs. 20,000 is with respect to the financial year, calculation of value or aggregate value of the benefit or perquisite triggering deduction of tax under this provision shall be counted from 1 st April of the financial year. Hence, if the value or aggregate value of the benefit or perquisite provided or likely to be provided to a resident exceeds Rs. 20,000 during the financial year 2022-23 (including the period up to 30th June 2022), the tax shall be required to be deducted in respect of any benefit or perquisite provided on or after 01-07-2022.

7. When the provisions of Section 194R shall not apply?

No tax shall be deducted under this provision in the following circumstances.

• No TDS if the value of benefit or perquisite is below Rs. 20,000 No tax shall be deducted under this provision if the value or aggregate of the value of the benefit or perquisite provided or likely to be provided during the financial year does not exceed Rs. 20,000.
• No TDS if provider is a specified individual or HUF This provision shall not apply to an individual or a HUF whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 lakh in case of the profession during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such Individual or HUF.

8. How to deduct tax from benefit or perquisite?

Where the benefit or perquisite, is wholly in kind or partly in cash and partly in kind, but such part in cash is not sufficient to meet the liability of deduction of tax in respect of the whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite.

As it is the responsibility of the deductor to ensure that tax has been paid in respect of the benefit or perquisite, the liability may be discharged by:

• “payer” by grossing up and paying tax out of his pocket;
• “payee” gives cash to the payer to meet TDS liability;
• debiting the amount of TDS to the account of the payee if it has a credit balance, so that amount will be paid net of TDS whenever the credit balance is paid to the payee; or
• “payee” himself pays tax and gives challan to the payer.

In this respect, the CBDT has clarified that where the payee himself pays tax, the tax would be required to be paid in form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in the TDS return along with the challan number. Form 26Q has included provisions for reporting such transactions.

Further, where the benefit provider deducts the tax under section 194R and pays to the Government, the tax should be deducted after taking into account the fact the tax paid by him as TDS is also a benefit under section 194R of the Act. Thus, it is suggested to compute the amount of TDS after grossing up the value of benefit or perquisite. In Form 26Q, it shall be shown as tax deducted on benefit provided.

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

The CBDT has clarified that the valuation would be based on fair market value of the benefit or perquisite except in following cases:-

• The benefit/perquisite provider 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.
• The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.

10. Whether Section 194R apply only when benefit or perquisite is taxable under section 28(iv)?

The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands of the recipient under Section 28(iv) of the Act. The amount could be taxable under any other section like Section 41(1) etc.

11. Whether Section 194R apply only when benefit or perquisite is taxable in the hands of the recipient?

Section 194R casts an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source @10%. 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.

Unlike Section 195 where there is a requirement to check whether the sum payable to a person is chargeable to tax under the provision of the Income-tax Act or Double Taxation Avoidance Agreement (DTAA), no such requirement is there in section 194R. Hence, there is no requirement for the deductor under section 194R to verify whether the amount is taxable in the hands of the recipient or the section under which it is taxable.

The Supreme Court takes the same view in the case of PILCOM vs. CIT [2020] 116 taxmann.com 394 (SC) in reference to the deduction of tax under Section 194E. It was held by the Hon’ble Supreme Court that tax is to be deducted under section 194E at a specific rate indicated therein and there is no need to see the taxability under DTAA or the rate of taxability in the hands of the non-resident.

12. Whether Section 194R apply only when benefit or perquisite is provided in kind?

The first proviso to section 194R(1) provides that where the benefit or perquisite is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or prerequisite.

This proviso clearly indicates the intent of the legislature that there could also be situations where benefit or perquisite is in cash or the benefit or perquisite is in kind or partly in cash and partly in kind. Thus, section 194R of the Act clearly brings in its scope the situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind.

13. Whether section 194R apply where the benefit or perquisite is provided in the form of capital asset?

It has been held by the various courts that benefits or perquisites shall be taxable in the hands of the recipient even if they are in the nature of the capital asset. The following judgments are noteworthy in this respect:

• Sum received in pursuance of a consent decree of Court in a suit regarding land transaction taxed as business income 1 .
• Where an assessee, a Vedanta preacher, is presented with a car by his disciples, the value of the car would constitute a benefit taxable under section 28(iv) 2 .

Thus, it can be seen that the asset given as benefit or perquisite may be a capital asset in a general sense of the term like car, land, etc. but in the hands of the recipient it is benefit or perquisite and, accordingly, section 194R shall also apply in such cases.

14. Whether sales discounts, cash discounts and rebates are benefit or perquisite?

Sales discounts, cash discounts or rebates allowed to customers from the listed retail price represent lesser realization of the sale price itself. To that extent purchase price of customer is also reduced.

Logically these are also benefits though related to sales/purchase. Since TDS under section 194R of the Act is applicable on all forms of benefit/perquisite, tax is required to be deducted. However, it is seen that subjecting these to tax deduction would put sellers in difficulty. To remove such difficulty it is clarified that no tax is required to be deducted under section 194R of the Act on sales discounts, cash discounts, and rebates allowed to customers.

However, at the same time, it has been clarified in the CBDT Circular that this relaxation should not be extended to other benefits provided by the seller in connection with its sale.

To illustrate, the following are some of the examples of benefits or perquisites on which tax is required to be deducted under section 194R (the list is not exhaustive):

• When a person gives Free Samples.
• When a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc.
• When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets.
• When a person provides free ticket for an event.
• When a person gives medicine samples free to medical practitioners.

15. Whether section 194R apply on supplying of free goods under promotional schemes like ‘buy more get more’?

Where free items from the stock of the seller are being offered with the purchase of some items, the CBDT has clarified that Section 194R shall not apply in such a case.

For instance , if the seller offers 2 items free with the purchase of 10 items. In substance, the seller is actually selling and the buyer is buying the 12 items at a price of 10 items. Thus, the seller and buyer record the transaction at the same value. In such a situation, there could be difficulty in applying section 194R provision. Hence, to remove the difficulty it is clarified that on the above facts no tax is required to be deducted.

16. Whether section 194R apply if instead of providing the benefit or perquisite directly to an entity, it is provided to the owner, director, or employee thereof?

The CBDT has clarified where the benefit or perquisite is used by the owner, director, or employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or exercising a profession, the tax shall be required to be deducted in the name of recipient entity since the usage by owner/director/employee or relatives thereof is by virtue of their relation with the recipient entity and in substance, the benefit or perquisite has been provided to the recipient entity.

To illustrate , the free medicine sample may be provided by a company to a doctor who is an employee of a hospital. The TDS under section 194R is required to be deducted by the company in the hands of hospital as the benefit/perquisite is provided to the doctor on account of him being the employee of the hospital. Thus, in substance, the benefit/perquisite is provided to the hospital.

The hospital may subsequently treat this benefit/perquisite as the perquisite given to its employees (if the person who used it is his employee) under Section 17 and deduct tax under Section 192. In such a case it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital. The hospital can get credit of tax deducted under section 194R by furnishing its return of income.

Similarly, if the doctor is not an employee of the hospital but rather working as a consultant in the hospital. In this case, the benefit or perquisite provider may deduct tax under section 194R with the hospital as recipient and then the hospital may again deduct tax under section 194R for providing the same benefit or perquisite to the consultant doctor. To remove the difficulty, as an alternative, the original benefit or perquisite provider may directly deduct tax under section 194R of the Act in the case of the consultant doctor as a recipient.

Here, it is to be noted that the threshold limit of Rs. 20,000 shall be required to be seen with respect to the recipient entity. For instance, if a pharmaceutical company provides benefit of worth Rs. 5000 to 10 doctors working as an employee in a hospital. The value of benefit would be seen with respect to the hospital and not the doctors. Thus, the aggregate value of the benefit provided in this case Rs. 50,000 and, accordingly, the tax shall be required to be deducted.

17. Whether section 194R apply where the benefit or perquisite is provided to a Government entity?

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

18. Whether the amount of GST be included in the value of benefit or perquisite for TDS under section 194R?

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

19. If an entity provides its product to social media influencers for publicity, will it be treated as a benefit or perquisite?

The CBDT has clarified that if the social media influencer returned the product like Car, Mobile, Outfit, Cosmetics, etc. to the entity after using it for rendering his services, i.e., social media influence, then it will not be treated as a benefit or perquisite for the purposes of section 194R. However, if the product is retained by the social media influencer then it will be in the nature of benefit/perquisite, and tax is required to be deducted accordingly under section 194R.

20. Whether reimbursement of out of pocket expenses would attract TDS under section 194R?

The CBDT has clarified that if the expenditure in respect of which the reimbursement is made is invoiced in the name of the person who is making the reimbursement then it shall not be treated as benefit or perquisite for the purpose of section 194R. However, if the invoice is not in the name of the person making the reimbursement, then it shall be treated as a benefit or perquisite for the recipient, and, accordingly, tax shall be deducted under section 194R.

CBDT’s circular seems to suggest that even if the reimbursement is made on a cost-to-cost basis, it would attract TDS under section 194R if the expenditure in respect of which reimbursement is made is not invoiced in the name of the person making the reimbursement.

21. Whether expenditure pertaining to dealer or business conference be considered as benefit or perquisite for the purposes of section 194R?

The CBDT has clarified that the expenditure pertaining to deafer/business conference would not be considered as benefit or perquisite for the purposes of section 194R in a case where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects:

• new product being launched
• discussion as to how the product is better than others
• obtaining orders from dealers/customers
• teaching sales techniques to dealers/customers
• addressing queries of the dealers/customers
• reconciliation of accounts with dealers/customers.

However, such conference must not be in the nature of incentives/benefits to select dealers/customers who have achieved particular targets. Further, in the following cases the expenditure would be considered as benefit or perquisite for the purposes of section 194R:

• 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.

1 Ramesh Babulal Shah v. CIT (2015) 53 taxmann.com 277 (Bom)

2 CIT (Addl) v. Ram Kripal Tripathi [1980] 4 Taxman 149 (Allahabad)

Dive Deeper: What is Advance Tax? How to Calculate and Due Dates of It

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

• The statutory material is obtained only from the authorized and reliable sources
• All the latest developments in the judicial and legislative fields are covered
• Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
• Every content published by Taxmann is complete, accurate and lucid
• All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
• The golden rules of grammar, style and consistency are thoroughly followed
• Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied

21 thoughts on “[FAQs] Section 194R of the Income-tax Act | TDS on Benefit or Perquisite”

In case of Activity Completed on or before 30.06.2022 and invoices raised on 30.06.2022 or july-22 but company settled this invoices in July-22. Will this attract 194R? suppose Activity fall under benefits/perquisite

As the invoices have been settled in the month of July 2022, the benefits/perquisit is being provided in July month itself. Hence the TDS u/s 194R will be attracted.

HI, CBDT has clarified that if the benefit or perquisite has been provided on or before 30th June 2022, it would not be subjected to tax deduction under section 194R of the Act.

Our Company Declare Incentive to Dealer for Quarter April to June in Gold Coin of Rs.100000/. We order Gold to P.N.Gadgil on 27/06/2022. We receive Gold Coin on 5/07/2022 . Would like to know Shall TDS Sec 194R is applicable to Company for Rs.100000/-

Dear Friend, there is NO TDS provision for purchasing the gold coin. The new TDS provision 194R will apply when your company will declare/distribute the Incentive/coins to the dealers.

Yes, as the tax is required to be deducted at the time of providing of the benefit to the recipient. In your case, the benefit shall be deemed to be provided on the date on which gold coins are actually handed to the dealer.

Sir, where a manufacturing company is providing free articles (which are not manufactured by the company) to the stockist and dealers to promote sales and the said stockist & dealers transfer such free articles to their customers. Whether Tds applicable u/s 194R on the company even when such stockist etc. is not the actual beneficiary in substance. Please also explain whether that stockist or dealers are also required to deduct tds u/s 194R

in my opinion the stockist and dealers are just pass through entities and the beneficiary is end customer, who is getting the free articles not in plying of any business or profession, hence TDS u/s 194R will not get attracted. It goes without saying the proper documentation be kept to prove the facts.

Hi Anoop, Where free items from the stock of the seller are being offered with the purchase of some items, the CBDT has clarified that Section 194R shall not apply in such a case.

IS TDS SEC 194R IS APPLICABLE ON INCENTIVE PAID TO SALES STAFF

Hello Sir, Tax is required to be deducted under Section 194R if the benefit or perquisite is received in course of carrying on business or profession. Thus, if an employer-employee relationship exists between the provider and the recipient of the benefit or perquisite, the tax is deductible under section 192 and not under section 194R. Thus, to answer the query, if the incentive is given to sales staff, being an employee, the tax will be deducted under section 192 otherwise section 194R may apply.

While filing 26Q for the period Jul to Sep22. NSDL FUV 7.8 version does not allowed to Validate the file due to 194R deduction data and NSDL authority saying that so far we have not received any guideline for 194R

SIR BEING A SOCIAL INFLUENCER I RECIEVED AMOUNT 200000 ON WHICH TDS HAS BEEN DEDCUTED U/S 194R WHERE I RECIEVED PREQ BY LINKDN ON TARGET COMPLETION, NOW ITS ONE TIME PAYEMNT THAT I HAVE RECEIVED . MY QUESTION, UNDER EHICH HEAD IT WILL TAXED IN INCOME TAX ?

The amount shall be chargeable to tax under the head business or profession.

sir whether foreign package tour of Director of a company for Rs.200000/- is attract any any TDS/TCS from our side. thanks D.K.SAHA

Yes, TCS provisions shall be applicable under section 206C

Hi Sir, We are in wholesale business i.e., supply of electrical switches and cables . We purchased a particular brand materials with dealer and that dealer had given our PAN no to manufacturer; as manufacturer asked that dealer to disclose premium buyer PAN No and now the manufacturer has deducted TDS U/sec 194R and mentioned some perquisite amount. We haven’t done any business with manufacturer, now shall we record them as income and claim the TDS amount and as well as claim expenditure as our Business Promotion Expenses

The value of any benefit or perquisite arising from the business or from the exercise of a profession is chargeable to tax as business income. Thus, we need to first analysis whether the perquisite shown by the manufacture is actually a perquisite or not in accordance with the CBDT’s guidelines. For further assistance, please contact us at [email protected].

Sir, Please explain how to account for the benefit or perquisite received by an paints dealer in form of business conference trip expenses from a paints company, in kind ( enjoyment of tour, which includes travelling expenses, lodge rent and food and beverages provided in the trip)in the recipient’s books.

For the purpose of accounting of gifts/perquisites, a detailed analysis need to be done. Further, it also depends upon the accounting principles being adopted by an entity i.e. AS or Ind AS.

What will be the journal entry for such perquisites to show them as income in the books of accounts of the receiver?

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

PREVIOUS POST

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Latest books.

Income Tax Rules

Finance Act 2023 Essentials Combo

Finance Act 2023 Commentary Combo

Everything on Tax and Corporate Laws of India

Author: Taxmann

• Font and size that's easy to read and remain consistent across all imprint and digital publications are applied

Everything you need on Tax & Corporate Laws. Authentic Databases, Books, Journals, Practice Modules, Exam Platforms, and More.

• Express Delivery | Secured Payment
• Free Shipping in India on order(s) above ₹500
• Missed call number +91 8688939939
• Virtual Books & Journals
• About Company
• Media Coverage
• Budget 2022-23
• Business & Support
• Sell with Taxmann
• Locate Dealers
• Locate Representatives
• CD Key Activation
• Privacy Policy
• Return Policy
• Payment Terms

Dissecting the CBDT Circular, Section 194R: TDS on benefits and perquisites

Our speakers shared insights on the recent announcement of the new tds rule..

Our speakers also discussed the following aspects:

• Provisions of section 194R introduced by the Finance Act, 2022
• Dealer conferences/trips
• Free medical samples
• Discounts, rebates, cash benefits
• Benefits to directors/employees
• Valuation of benefits and perquisites
• Compliance – non-cash perquisites
• Implementation and operational challenges likely to be faced by the industry
• Sameer Gupta  – Tax Markets Leader, EY India
• Hitesh Sharma  – Partner, International Tax and Transaction Services and Tax Life Sciences Leader, EY India 
• Amresh Choudhary  – Group Tax Head, Alembic Pharmaceuticals Ltd 
• Vikas Aggarwal  – Direct Tax Head, Novartis 
• Ravikant Kamath  – Associate Tax Partner, Knowledge and Solutions, EY India
• Rajan Vora  – Tax Controversy Leader, Indian member firm of EY Global

Time your local time

How EY can help

Digital tax strategy.

EY’s broad approach to digital tax strategy, covering digital tax effectiveness, digital tax administration, tax technology and tax big data, helps you identify your tax function’s immediate challenges and develop an enhanced operating model strategy fit for the transformative age.

Withholding tax payable solution - EY DigiTDS

EY DigiTDS is a comprehensive cloud-based withholding tax payable solution and is equipped to handle Tax Deduction at Source (‘TDS’) on purchase of goods and verify ‘specified person’ status. Similarly, Tax Collection at Source (‘TCS’) module of DigiTDS enables transformation of the entire TCS compliance and reporting cycle and handles customer declarations.

Related content

Connect with us

Our locations

Legal and privacy

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

EY | Assurance | Consulting | Strategy and Transactions | Tax

EY is a global leader in assurance, consulting, strategy and transactions, and tax services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2020 EYGM Limited. All Rights Reserved.

EYG/OC/FEA no.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

Welcome to EY.com

In addition to cookies that are strictly necessary to operate this website, we use the following types of cookies to improve your experience and our services: Functional cookies to enhance your experience (e.g. remember settings), and  Performance cookies to measure the website's performance and improve your experience . , and Marketing/Targeting cookies , which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you.

We have detected that Do Not Track/Global Privacy Control is enabled in your browser; as a result, Marketing/Targeting cookies , which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you, are automatically disabled.

You may withdraw your consent to cookies at any time once you have entered the website through a link in the privacy policy, which you can find at the bottom of each page on the website.

Review our  cookie policy  for more information.

Customize cookies

I decline optional cookies