Section 194R TDS on Business Perquisites.ppsx

Presentation on Section 194R of Income Tax Act, 1961 , TDS on Business related perquisites and benefits.

1. 194R
of the
Income Tax Act, 1961
TDS
on
benefit or perquisite
in respect of business or profession
CA Dr Prithvi Ranjan Parhi
Chartered Accountant and Business Valuer
CA Dr Prithvi Ranjan Parhi 1

2. 07-08-2022 CA Dr Prithvi Ranjan Parhi 2
194R
TDS on benefit or perquisite in respect of business or profession
Benefit/ Perquisite
Convertible into
money or not
Arising from business
/ Profession
To a Resident
TDS 10%
Not Applicable
Aggregate Value >Rs.20,000/-
Individual / HUF
Previous FY BusinessTurnover
>Rs.1 Crore
Individual / HUF
Previous FY Professional
Turnover >Rs.50 Lakh
Benefit/
Perquisite is
in Kind
Ensure
that Tax is
Paid

3. Sec 194R
TDS on benefit or perquisite in respect of business or profession
•194R.(1)Anypersonresponsibleforprovidingtoa
resident,anybenefitorperquisite,whether
convertibleintomoneyornot,arisingfrombusiness
ortheexerciseofaprofession,bysuchresident,
shall,beforeprovidingsuchbenefitorperquisite,as
thecasemaybe,tosuchresident,ensurethattaxhas
beendeductedinrespectofsuchbenefitorperquisite
attherateoftenpercentofthevalueoraggregate
ofvalueofsuchbenefitorperquisite:
10%
TDS
On
Benefits/
Perks arising
from
Business/
Profession
07-08-2022 CA Dr Prithvi Ranjan Parhi 3

4. Sec 194R
TDS on benefit or perquisite in respect of business or profession
•Providedthatinacasewherethebenefitor
perquisite,asthecasemaybe,iswhollyinkindor
partlyincashandpartlyinkindbutsuchpartin
cashisnotsufficienttomeettheliabilityof
deductionoftaxinrespectofwholeofsuchbenefit
orperquisite,thepersonresponsibleforproviding
suchbenefitorperquisiteshall,beforereleasingthe
benefitorperquisite,ensurethattaxrequiredtobe
deductedhasbeenpaidinrespectofthebenefitor
perquisite:
In Kind ?
Ensure that
Tax is paid
07-08-2022 CA Dr Prithvi Ranjan Parhi 4

5. TDS on benefit or perquisite in respect of business or profession
•Providedfurtherthattheprovisionsofthissectionshallnot
applyincaseofaresidentwherethevalueoraggregateof
valueofthebenefitorperquisiteprovidedorlikelytobe
providedtosuchresidentduringthefinancialyeardoesnot
exceedtwentythousandrupees:
•Providedalsothattheprovisionsofthissectionshallnotapply
toapersonbeinganindividualoraHinduundividedfamily,
whosetotalsales,grossreceiptsorturnoverdoesnotexceed
onecrorerupeesincaseofbusinessorfiftylakhrupeesincase
ofprofession,duringthefinancialyearimmediatelypreceding
thefinancialyearinwhichsuchbenefitorperquisite,asthe
casemaybe,isprovidedbysuchperson.
Not Applicable
Value
<Rs.20,000
Individual /HUF
Turnover <1
Crore for
Business
<50 Lakh for
Profession
In Preceding FY
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6. Sec 194R
Deduction of tax on benefit or perquisite in respect of
business or profession
•(2)Ifanydifficultyarisesingivingeffecttotheprovisionsofthissection,theBoardmay,
withthepreviousapprovaloftheCentralGovernment,issueguidelinesforthepurposeof
removingthedifficulty.
•(3)EveryguidelineissuedbytheBoardundersub-section(2)shall,assoonasmaybeafter
itisissued,belaidbeforeeachHouseofParliament,andshallbebindingontheincome-tax
authoritiesandonthepersonprovidinganysuchbenefitorperquisite.
•Explanation.—Forthepurposesofthissection,theexpression"personresponsiblefor
providing"meansthepersonprovidingsuchbenefitorperquisite,orincaseofacompany,
thecompanyitselfincludingtheprincipalofficerthereof.
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8. Question 1.
•Isitnecessarythatthepersonprovidingbenefitorperquisiteneeds
tocheckiftheamountistaxableunderclause(iv)ofsection28of
theAct,beforedeductingtaxundersection194RoftheAct?
No.
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10. Question 2.
•Is it necessary that the benefit or perquisite must be in kind
for section 194R of the Act to operate?
No.
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11. Question 3.
•Isthereanyrequirementtodeducttaxundersection194Rofthe
Act,whenthebenefitorperquisiteisintheformofcapitalasset?
Yes.
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12. Question 4:
•Whethersalesdiscount,cashdiscountandrebatesarebenefitor
perquisite?
Yes but No TDS
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13. Question 4:
•Salesdiscounts,cashdiscountorrebatesallowedtocustomersfromthelistedretailprice
representlesserrealizationofthesalepriceitself.Tothatextentpurchasepriceofthe
customerisalsoreduced.
•Logicallythesearealsobenefitsthoughrelatedtosales/purchase.
•SinceTDSundersection194RoftheActisapplicableonallformsofbenefit/perquisite,
taxisrequiredtobededucted.However,itisseenthatsubjectingthesetotaxdeduction
wouldputsellertodifficulty.
•Toremovesuchdifficultyitisclarifiedthatnotaxisrequiredtobedeductedundersection
194RoftheActonsalesdiscount,cashdiscountandrebatesallowedtocustomers.
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14. Free Items Vs Free Samples
•Therecouldbeanothersituation,whereasellerissellingitsitemsfromitsstock
intradetoabuyer.
•Thesellerofferstwoitemsfreewithpurchaseof10items.
•Insubstance,thesellerisactuallyselling12itemsatapriceof10items.Letus
assumethatthepriceofeachitemisRs12.Inthiscase,thesellingpriceforthe
sellerwouldbeRs120for12items.
•Forbuyer,hehaspurchased12itemsatapriceof10.Justlikeseller,thepurchase
priceforthebuyerisRs120for12itemsandheisexpectedtorecordsoinhis
books.
•Insuchasituation,againtherecouldbedifficultyinapplyingsection194R
provision.
•Hence,toremovedifficultyitisclarifiedthatontheabovefactsnotaxisrequired
tobedeductedundersection194RoftheAct.
•Itisclarifiedthatsituationisdifferentwhenfreesamplesaregivenandtheabove
relaxationwouldnotapplytoasituationoffreesamples.
Free Items
:
No TDS
Free
Samples :
TDS
07-08-2022 CA Dr Prithvi Ranjan Parhi 14

15. Q #4
•Similarly,thisrelaxationshouldnotbeextendedtootherbenefitsprovidedbythesellerin
connectionwithitssale.
•Toillustrate,thefollowingaresomeoftheexamplesofbenefits/perquisitesonwhichtaxis
requiredtobedeductedundersection194RoftheAct(thelistisnotexhaustive):
1.Whenapersongivesincentives(otherthandiscount,rebate)intheformofcashor
kindsuchascar,TV,computers,goldcoin,mobilephoneetc.
2.Whenapersonsponsorsatripfortherecipientandhis/herrelativesuponachieving
certaintargets
3.Whenapersonprovidesfreeticketforanevent
4.Whenapersongivesmedicinesamplesfreetomedicalpractitioners.
•Theaboveexamplesareonlyillustrative.Therelaxationprovidedfromnon-deductionof
taxforsalesdiscountandrebateisonlyonthoseitemsandshouldnotbeextendedto
others.
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16. Question 5.
How is the valuation of benefit/perquisite required to be carried out?
1.FairMarketValue
2.IfPurchased:Purchaseprice
3.IfManufactured:Pricechargedtoitscustomers
4.GSTwillnotbeincluded
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17. Question 5.
How is the valuation of benefit/perquisite required to be carried out?
•Thevaluationwouldbebasedonfairmarketvalueofthebenefitorperquisiteexceptin
followingcases:-
i.Thebenefit/perquisiteproviderhaspurchasedthebenefit/perquisitebeforeproviding
ittotherecipient.Inthatcasethepurchasepriceshallbethevalueforsuch
benefit/perquisite.
ii.Thebenefit/perquisiteprovidermanufacturessuchitemsgivenasbenefit/perquisite,
thenthepricethatitchargestoitscustomersforsuchitemsshallbethevalueforsuch
benefit/perquisite.
•ItisfurtherclarifiedthatGSTwillnotbeincludedforthepurposesofvaluationof
benefit/perquisiteforTDSundersection194RoftheAct.
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18. Question 6:
•Manyatimes,asocialmediainfluencerisgivenaproductof
amanufacturingcompanysothathecanusethatproductand
makeaudio/videotospeakaboutthatproductinsocial
media.
•Isthisproductgiventosuchinfluencerabenefitor
perquisite?
If Returned : No benefit/perquisite
If Retained : Benefit/perquisite
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19. Answer 6:
•Whetherthisisbenefitorperquisitewilldependuponthefactsofthecase.
•Incaseofbenefitorperquisitebeingaproductlikecar,mobile,outfit,
cosmeticsetcandiftheproductisreturnedtothemanufacturingcompany
afterusingforthepurposeofrenderingservice,thenitwillnotbetreatedasa
benefit/perquisiteforthepurposesofsection194RoftheAct.
•However,iftheproductisretainedthenitwillbeinthenatureof
benefit/perquisiteandtaxisrequiredtobedeductedaccordinglyunder
section194RoftheAct.
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20. Expenses of Consultant met by Assessee
•Letusassumethataconsultantisrenderingservicetoaperson"X"forwhichheisreceivingconsultancyfee.
Inthecourseofrenderingthatservice,hehastotraveltodifferentcityfromtheplacewhereisregularly
carryingonbusinessorprofession.Forthispurpose,hepaysforboardingandlodgingexpenseincurred
exclusivelyforthepurposesofrenderingtheserviceto"X".Ordinarily,theexpenditureincurredbythe
consultantispartofhisbusinessexpenditurewhichisdeductiblefromthefeethathereceivesfromcompany
"X".
•Insuchacase,thefeereceivedbytheconsultantishisincomeandtheexpenditureincurredontravelishis
expendituredeductiblefromsuchincomeincomputinghistotalincome.Nowifthistravelexpenditureismet
bythecompany"X",itisbenefitorperquisiteprovidedby"X"totheconsultant.
•However,sometimestheinvoiceisobtainedinthenameof"X"andaccordingly,ifpaidbytheconsultant,is
reimbursedby"X".Inthiscase,sincetheexpensepaidbytheconsultant(forwhichreimbursementismade)is
incurredwhollyandexclusivelyforthepurposesofrenderingservicesto"X“andtheinvoiceisinthenameof
"X",thenthereimbursementmadeby"X"beingtheservicerecipientwillnotbeconsideredas
benefit/perquisiteforthepurposesofsection194RoftheAct.
•Iftheinvoiceisnotinthenameof"X"andthepaymentismadeby"X"directlyorreimbursed,itisthe
benefit/perquisiteprovidedby"X"totheconsultantforwhichdeductionisrequiredtobemadeundersection
194RoftheAct.
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21. 07-08-2022 CA Dr Prithvi Ranjan Parhi 21
Expenses of Consultant met by Assessee
In the name of
Assessee
No Benefit/perquisite
Invoice
Not In the name of
Assessee
Benefit/perquisite

22. Question 8:
If there is a dealer conference to educate the dealers about the
products of the company -Is it benefit/perquisite?
•Theexpenditurepertainingtodealer/businessconferencewouldnotbeconsideredas
benefit/perquisiteforthepurposesofsection194RoftheActinacasewhere
dealer/businessconferenceisheldwiththeprimeobjecttoeducatedealers/customers
aboutanyofthefollowingorsimilaraspects:
i.newproductbeinglaunched
ii.discussionastohowtheproductisbetterthanothers
iii.obtainingordersfromdealers/customers
iv.teachingsalestechniquestodealers/customers
v.addressingqueriesofthedealers/customers
vi.reconciliationofaccountswithdealers/customers
•However,suchconferencemustnotbeinthenatureofincentives/benefitstoselect
dealers/customerswhohaveachievedparticulartargets.
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23. Leisure Trip
•Further,inthefollowingcasestheexpenditurewouldbeconsidered
asbenefitorperquisiteforthepurposesofsectionI94RoftheAct:-
i.Expenseattributabletoleisuretriporleisurecomponent,evenifitis
incidentaltothedealer/businessconference.
ii.Expenditureincurredforfamilymembersaccompanyingtheperson
attendingdealer/businessconference
iii.Expenditureonparticipantsofdealer/businessconferencefordayswhich
areonaccountofpriorstayoroverstaybeyondthedatesofsuch
conference.
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24. Question 9:
•Section194Rprovidesthatifthebenefit/perquisiteisinkindor
partlyinkind(andcashisnotsufficienttomeetTDS)thenthe
personresponsibleforprovidingsuchbenefitorperquisiteis
requiredtoensurethattaxrequiredtobedeductedhasbeenpaidin
respectofthebenefitorperquisite,beforereleasingthebenefitor
perquisite.
•Howcansuchpersonbesatisfiedthattaxhasbeendeposited?
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25. Answer #9
•Therequirementoflawisthatifapersonisprovidingbenefitinkindtoa
recipientandtaxisrequiredtobedeductedundersection194RoftheAct,the
personisrequiredtoensurethattaxrequiredtobedeductedhasbeenpaidby
therecipient.Suchrecipientwouldpaytaxintheformofadvancetax.
•Thetaxdeductormayrelyonadeclarationalongwithacopyoftheadvance
taxpaymentchallanprovidedbytherecipientconfirmingthatthetaxrequired
tobedeductedonthebenefit/perquisitehasbeendeposited.
•ThiswouldbethenrequiredtobereportedinTDSreturnalongwithchallan
number.
•ThisyearForm26Qhasincludedprovisionsforreportingsuchtransactions.
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26. Answer #9
•Inthealternative,asanoptiontoremove
difficultyifany,thebenefitprovidermaydeduct
thetaxundersection194RoftheActandpayto
theGovernment.
•Thetaxshouldbedeductedaftertakinginto
accountthefactthetaxpaidbyhimasTDSis
alsoabenefitundersection194RoftheAct.
•IntheForm26Qhewillneedtoshowitastax
deductedonbenefitprovided.
Benefit
÷90
X 100
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27. Question 10.
•Section194Rwouldcomeintoeffectfromthe1
st
July2022.
•Secondprovisotosubsection(I)ofsection194RoftheAct
providesthattheprovisionofthissectiondoesnotapplywherethe
valueoraggregateofvalueofthebenefitorperquisiteprovidedor
likelytobeprovidedtoaresidentduringthefinancialyeardoesnot
exceedtwentythousandrupees.
•Itisnotclearhowthislimitoftwentythousandistobecomputed
fortheFinancialYear2022-23?
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28. Answer #10
•Itisherebyclarifiedthat,-
•i)Sincethethresholdoftwentythousandrupeesiswithrespecttothefinancialyear,
calculationofvalueoraggregateofvalueofthebenefitorperquisitetriggeringdeduction
undersection194RoftheActshallbecountedfrom1
st
April,2022.
•Hence,ifthevalueoraggregatevalueofthebenefitorperquisiteprovidedorlikelytobe
providedtoaresidentexceedstwentythousandrupeesduringthefinancialyear2022-23
(includingtheperiodupto30thJune2022),theprovisionofsection194Rshallapplyon
anybenefitorperquisiteprovidedonorafter1
st
July2022.
•ii)Thebenefitorperquisitewhichhasbeenprovidedonorbefore30
th
June2022,would
notbesubjectedtotaxdeductionundersection194RoftheAct.
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29. Thanks
CA Dr Prithvi Ranjan Parhi
[email protected]
CA Dr Prithvi Ranjan Parhi 29