Finance Act,2022 introduced a new section 194R of the Income Tax Act,1961 (“Act”) for deduction of tax on the benefits or perquisites in respect of business or profession w.e.f. 1 st July,2022.
This section was introduced to plug the tax leakage and deepen the tax base, to provide for deduction of tax on the value of benefits or perquisites whether convertible into money or not, arising from business or profession which was taxable in the hands of the recipient under section 28(iv) of the Act but many time was going undisclosed.
Any person providing any benefit or perquisite to a resident, that can be wholly in kind or partly in kind and partly in cash, arising from business or the exercise of profession shall be liable to deduct TDS at the rate of 10% when value or aggregate of value exceeds twenty thousand rupees during the financial year.
The provision of this section shall not be applicable to individuals or HUF, to whom tax audit is not applicable as per section 44AB of the Act
In case where benefit or perquisite, is wholly in kind or partly in kind and partly in cash and cash portion is not sufficient to deduct TDS on aggregate of value then the person responsible for deducting TDS shall ensure tax has been paid before releasing the benefit or perquisite.
Any gift, travel facility, hospitality, cash or monetary grants from pharma companies and allied health sector industries is disallowed u/s 37 of the Act and the same has been clarified by the insertion of another explanation to 37(1) of the Act.
However, TDS u/s 194R will now be applicable on such payments but this tax collection will not condone the illegality of such actions.
The Hon’ble Supreme Court in Commissioner v. Mahindra and Mahindra Ltd held that for the purpose of section 28(iv) of the Act, the benefit which is received has to be in the form other than in the shape of money. Although the provisions of 194R for the deduction of TDS on perquisites or benefits do not directly make a reference to Section 28(iv) of the Act, the memorandum to the finance bill while giving the rationale to the introduction of this section, refers benefits and perquisites which are taxable under this section. Thus, clarity will be required in order to avoid litigation on whether this is applicable on only cash transactions.
Further, in case of benefit or perquisite in kind, there is no clarity provided yet on how the “value” of benefit or perquisite is to be ascertained.
