Impact Assessment of CBDT Circular on TDS on Benefits or Perquisites u/s 194R

Scope & Coverage of Section 194R

Section 194R: TDS @ 10% on Benefits or Perquisites, arising out of Business or Profession

• In the Finance Act 2022, a new TDS section 194R, has been inserted in the Income Tax Act, and which has been made applicable w.e.f. 1.7.2022.
• This new section 194R requires deduction of tax at source @10%, by any person (resident or non-resident), providing any benefit or perquisite, whether convertible into money or not, exceeding Rs. 20,000 in value in a year, to a resident, arising from the carrying out of any business or exercise of any profession by such resident recipient.
• The provisions of this section shall not apply if the benefit or perquisite provider is an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of 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.

Clarificatory Circular by CBDT

The Apex body CBDT has come up with a Clarificatory Circular No. 12 of 2022 bearing folio no. 370142/27/2022-TPL, dated 16.6.2022, containing clarificatory guidelines in the form of ‘Ten Question-Answers’, on newly inserted provisions concerning applicability of TDS on Benefits or Perquisites, u/s 194R of the Income Tax Act. The CBDT Circular provides that:

1. TDS u/s 194R is to be deducted @10%, w.e.f. 1.7.2022, irrespective of whether the Benefit or Perquisite is Taxable or Not in the hands of the Recipient.

2. TDS u/s 194R is to be deducted on Purchase Value (Actual Cost Basis) of such Benefit or Perquisite, if such benefit or perquisite has been purchased before giving the same to recipient, and in other cases, on Fair Market Value of such Benefit or Perquisite.

3. GST is to be Excluded from the Purchase Value or Fair Market Value of such Benefit or Perquisite, for the Purpose of TDS Deduction.

4. TDS u/s 194R is to be deducted if the Aggregate Value of the Benefit or Perquisite is in excess of Rs. 20,000/-, in a Year, per Recipient.

5. For FY 2022-23, the Value of Benefit or Perquisite given in the Period from 1.4.2022 to 30.6.2022, will be counted and considered for determining the threshold limit of Rs. 20,000 in a year, but TDS u/s 194R will not be deducted on such Benefits or Perquisites. TDS u/s 194R will be deducted only on those Benefits or Perquisites which are provided or given on or after 1.7.2022.

Perquisites under Salary Head are Not Covered u/s 194R

• The benefits or perquisites to be covered by this new section 194R are those perks, benefits, amenities, or facilities, in cash or kind, or in a combination of cash and kind, which a resident person enjoys, pursuant to, or in exercise of his business or profession, in lieu of the regular consideration payable to him, in monetary terms, in exercise of such business or profession.
• The benefit or perquisite referred to in this new section 194R is not the perquisite u/s 17(2), under the head salary income, paid or payable by the employer to employees, as for that perquisite u/s 17(2), another TDS section 192 is already there.
• Therefore, any benefits or perks (perquisites) given by the Company to its Directors and Employees, like ESOPs, Cars, Rent Free Accommodations, Free Tours, LTCs, Mobiles, Performance Linked Incentives etc. are not covered u/s 194R, as these are already subject to TDS u/s 192 under the Salary Head, of the Income Tax Act.

To read the full article, Click Here