The new TDS section 194R introduced in the Budget, 2022 shall be applicable from 1st July, 2022, requiring a deduction of 10% by any person (resident or non-resident) who provides benefit or perquisite to a resident person in a year exceeding Rs 20,000 shall be liable for TDS under section 194R.
What does Benefit and Perquisite mean?
- Any benefit given by a person to a Resident as a freebie to endorse the brand. (like mobile phones, gold coins, TV)
- The benefit may be fully in kind.
- The benefit may be partly in cash and partly in kind
- This also includes a free sponsorship, free air ticket.
- Free ticket for IPL.
- Free medicine sample given to Medical practitioners.
These are the few examples and not an exhaustive list of benefits and perquisites.
Valuation of Benefit or Perquisite under 194R.
- TDS shall be deducted on Fair Market Value or
- If the deductor has purchased the benefit/perquisite before providing it to the recipient then the value shall be the Purchase price (Actual cost).
- If the deductor manufactures such an item then the price that it charges to its customers for such item shall be the value for such benefit/perquisite.
Is GST considered in the valuation?
No, GST is not considered in the valuation for TDS u/s 194R
How is the tax deducted on the perquisite?
- Any benefit received in kind, then the deductor has to ensure that an advance tax is paid by the recipient of the benefit. Or
- Person who provides the benefits shall deduct TDS under 194R for the value of the benefit.
Application Of TDS On Working Doctors
CBDT clarifies that if doctors receive free samples of medicines while employed, Section 194R will apply to the distribution of free samples to the hospital.
The hospital, as an employer, could consider such samples as taxable perquisite for employed doctors and deduct tax accordingly.
In such cases, the threshold of ₹20,000 has to be seen with respect to the hospital. For doctors working as consultants and receiving free samples, TDS would ideally apply to the hospital first, which would require deducting tax under Section 194R regarding consultant doctors.
Application of TDS for Social Media Influencers.
- A product or any freebie is given to the social media influencer to promote or endorse the brand on social media shall be considered as a benefit or perquisite if the product is not returned.
When is 194R not Applicable?
- Section 194R will not be applicable if the benefit or perquisite is provided to a government entity, such as a hospital, not carrying on business or profession.
- Sales discounts, cash discounts, and rebates allowed to customers.
- When a social media influencer has to return the product after promotion or endorsement in social media.
Also Read: CBDT issues guidelines for removal of difficulties under Section 194R
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