Guidelines for implementation of provisions of Section 194R

Source: Circular No. 12 of 2022

The finance minister introduced section 194R via The Finance Act 2022 with an aim to track and tax the benefits or perquisites arising from business or profession. To bring more clarity to the newly introduced provisions, CBDT has issued certain guidelines which are as follows:

• The Deductor (person providing the benefit or perquisites) is not required to check, before deducting TDS, taxability of such perquisite in the hands of the recipient under section 28(iv) of the Act. Further, where such benefit is provided to a non-resident, TDS shall be required to be deducted u/s 195 of the Act irrespective of its taxability.

• Provisions of section 194R shall be applicable on all kinds of benefits or perquisites whether in cash or kind or partly in cash or partly in kind and shall include capital asset also (by virtue of interpretation in various cases decided).
• To reduce the likelihood of future litigation sales discount, cash discount and rebates are kept out of the scope of this section. However, if any other benefit is provided by the seller, it shall be treated as benefit or perquisite u/s 194R, for e.g., incentive given in the form of TV, Car, event tickets etc. are well within the scope of this section.
• Further, the deduction shall be made in the hands of the receiver and not the person benefiting from such perquisite.
• In case, where the benefit or perquisite is provided by the third party to an employee of the entity then TDS of the company shall be deducted u/s 194R by the third party and afterwards the company shall deduct TDS u/s 192 by treating such benefit as perquisite u/s 17 of the Act in the hands of the employee. These provisions shall not apply if benefits are provided to a government entity.
• Valuation of benefits or perquisite would be based on fair market value of such benefit or perquisite. However, where the provider of the benefit has purchased the perquisite before providing it to the recipient, such purchase price shall be considered as the value of the perquisite and where the provider is the manufacturer itself, value of the perquisite shall be the price generally charged from its customer.
• Note: GST shall not be included for the purpose of valuation of perquisite, i.e., amount shall be exclusive of GST.
• Where the manufacturing company provides its product to a social media influencer for promotional purposes, the applicability of TDS u/s 194R shall arise where the product is retained by such influencer or viceversa if returned.
• In case of reimbursement of expenses to a service provider, if invoice reimbursable of expense is in the name of the deductor availing such services, such reimbursement shall not be treated as the benefit u/s 194R and in cases where it is not in the name of the deductor, it shall be treated as benefit u/s 194R.
• Where a conference is arranged to educate the dealers about the product of the company, same shall not be treated as benefit or perquisite, to the extent the purpose of such conference is limited to educate the dealers. In case the company is incentivizing the dealer in any other way, it shall be covered within the ambit of section 194R.

• Where the benefit provided is in kind, then the deductor is obligated to ensure that the tax has been paid to the credit of the government. The beneficiary shall deposit advance tax and will share a declaration along with advance
• tax challan with the deductor. The deductor shall file its Form 26Q using such challan. However, where the provider decides to deposit TDS on its own, the amount of TDS paid by the provider shall also be treated as the benefit u/s 194R i.e., the value shall be grossed up.
• Threshold of Rs. 20,000 shall be considered on all transactions from 01.04.2022. However, TDS shall only be deducted on transactions which shall arise from 01.07.2022.

Harmeet Singh, Associate, SW India