Applicability of Section 194R of Income Tax Act.

Retailers.                 

194R on jewellery vouchers passed down a distribution chain:

• ABC (manufacturer) gives vouchers (Rs 24,000 each) to XYZ (distributor): ABC deducts 194R on XYZ if aggregate benefits exceed Rs 20,000 in a year. If XYZ passes them to retailers, XYZ must deduct 194R on the retailers (XYZ is providing the benefit).

• CBDT Circular 12/2022 says where the recipient merely passes the benefit to the end users (acts as a conduit), the deductor at each level considers who actually benefits. Document the pass-through.

ABC should examine the benefit or perquisite it provides to XYZ, not automatically the retailers. If ABC issues the vouchers to XYZ as a business benefit, section 194R may require TDS on the benefit’s value, subject to the applicable threshold and other conditions. The fact that XYZ later passes the vouchers to retailers does not, by itself, shift ABC’s TDS obligation to those retailers.

If XYZ merely distributes the vouchers to retailers on ABC’s behalf and has no beneficial entitlement to them, the facts may support treating the retailers as the recipients; document the arrangement and the actual flow of the benefit. Confirm whether the vouchers are cash-equivalent or redeemable for goods, and whether the ₹20,000 annual threshold is crossed for the relevant recipient, since these details affect the section 194R analysis.

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