Finance Act, 2022 introduced Section 194R to the Income Tax Act,1961 (“Act”) for withholding of taxes on benefits and perquisites arising from business or the exercise of a profession of the recipient at the rate of 10% from 1st July,2022. Although, the CBDT in this regard has issued Circular No. 12/2022 dated 16th June, 2022 to enable effective implementation of the provisions, but such circular has brought along with it a whirl of queries. Here we have addressed some commonly asked queries to help decode the applicable provisions.
Query 1: Whether TDS needs to be deducted u/s 194R in case of price adjustment or other incentives in case of vendors and end customers?
The CBDT in the circular issued clearly stated that though price adjustments in the form of reduced price or increased quantity fall within the ambit of the term benefits and perquisites, the same are specifically excluded in order to reduce compliance burdens. Thus, wherein a cash discount, sales discount or rebate is offered, no TDS is required to be deducted u/s 194R.
Drawing a persuasive reference from the exception mentioned in the circular, one can say that credit notes given to vendors, rebates provided for advance payments, increased credit period facility as these are in the nature of price reduction itself.
However, wherein such incentive is in the form of free goods or services which may be in the nature of a TV, gold coin, sponsorship of trip, meal coupons, vouchers etc, the same will construe a benefit or perquisite under Section 194R and accordingly will be subject to TDS at the rate of 10%. Further, under any circumstance, where such incentives are returned at a later stage, the TDS deducted can be reversed and TDS return is to be revised accordingly by the payer.
It is further pertinent to mention that such benefits or perquisites must be provided to a resident and they should arise from business or exercise of profession by the recipient/resident. Thus, where the person receiving such benefit or perquisite is an end customer and there is absence of the business-profession nexus with the provider, provisions of Section 194R will not be triggered.
E.g. No TDS u/s 194R will be required to be deducted where the benefits or perquisites are provided to an end customer, who is availing the services/ goods for personal consumption in the form of foreign tours, free meals, gold coins, tv, free software on the purchase of a laptop etc.
Query 2: Whether TDS u/s 194R is applicable in case of expenses incurred for which deduction is not claimed by the payer? E.g., CSR expenses incurred by the payer.
Under the provisions of the Act, CSR expenses are not claimed as deduction while computing taxable income. However, this fact does not obliviate the responsibility on the payer from deducting TDS where such payments qualify as benefits or perquisites arising from business or the exercise of profession for the receiver who is a resident.
In case of non-deduction of TDS, the payer shall be deemed to be an assessee-in-default and liable to pay interest on the amount of such short deduction.
Query 4: How would the valuation be done in various scenarios? What are the important points for valuation?
The CBDT provided clarification that the valuation will be based on fair market value of the benefit or perquisite except –
Where the person providing benefit/perquisite 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.
Where the person providing benefit/ perquisite manufactures such items, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.
Further, GST will not be included for the purposes of valuation of benefit or perquisite, irrespective it is available as a credit or is cost to the company.
There can be situations where a company provides shopping vouchers or food vouchers to the recipient after purchasing it in bulk quantity from a company engaged in selling these vouchers. The companies may end up paying lesser amount (say INR 28,000/-) towards such vouchers than the value of benefit available (say INR 30,000/-) from such voucher. Though, here in this case, the value derived from the vouchers is higher when compared to purchase price, the valuation should only be made at the price actually paid by the company towards the purchase of such vouchers.
Further, there may be a situation where depreciable assets are provided as a benefit. Since, the circular does not cover such scenario. Now, where one goes by the plain reading of the circular, it can be said that for the purposes of Section 194R, the value of such benefit or perquisite should be the purchase price. However, one can say that purchase price is qualified by the fact that such benefit should be provided after purchase and does not cover scenario where it is used and then provided subsequently. Accordingly, one can take a view that in case of , depreciable assets, the value should be the fair market value of such asset.
There might be a situation where the GST paid on benefit or perquisite provided to the receiver is not available as input tax credit. The CBDT, through the circular, has clearly clarified that GST will not be included for the purposes of valuation of benefit or perquisite. Therefore, where such clarification specifically exists without any exception, non-availability of GST input will not make any difference. Further, through this clarification the intent of the government is clear that tax on tax should not be imposed.
Also, wherein the TDS on perquisites is borne by the provider, value of such TDS shall be included for the purpose of valuation of benefit or perquisite for the purpose of this section.
Query 5: In cases where hotel stay, travel tickets and other expenses are borne by the company
on behalf of their service providers or lenders, etc., would it qualify for perquisite?
Where the payment for these expenses is made by the company directly and the invoice is in the name of the company, no benefit or perquisite shall arise in this situation. However, where such invoice is not in the name of the company, the same shall be classified as benefit or perquisite as clarified in the circular issued by the CBDT.
