Section 194R TDS – Analysis Applicable from 01/07/2022

APPLICABILITY: To all assesse (other than Individual & HUF) And Individual & HUF having Turnover is above Rs. 1,00,00,000 or Professional receipt is above Rs 50,00,000 in previous year 2021-22 assessment year 2022-23. Union Budget 2022, a new TDS section 194R, has been proposed in the Finance Bill 2022, w.e.f. 01.07.2022. This new section 194R requires deduction of tax at source @ 10%, by any person, providing any benefit or perquisite, exceeding Rs. 20,000 in value, in a year, to a resident, arising from the business or profession of such resident and such benefit or perquisite is in the nature of income falling under section 28(iv) of the Income tax Act. The benefit or perquisite referred to in this new section 194R is not the perquisite u/s 17(2), under the head salary income, paid or payable by the employer to employees, as for that perquisite u/s 17(2), another TDS section 192 is already there. The benefits or perquisites proposed to be covered by this new section 194R are those perks, benefits, amenities, or facilities, probably in kind, or in a combination of cash and kind, which a resident person enjoys, pursuant to, or in exercise of his business or profession, in lieu of the regular consideration payable to him, in monetary terms, in exercise of such business or profession. Such benefits or perquisites are taxable as business receipts u/s 28(iv) of the Income Tax Act. Sec 28 : The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,— (iv): the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession Also, such gifts, perks or benefits provided on some special occasions like festivals (Eg. Diwali sweets), marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession. Purpose for Introducing of Sec 194R: It was observed by department that many companies claimed expenses for business promotions by offering various gifts/ perks/ benefits to its dealers (on fulfillments of conditions of under agreement or as per prevalent norms/ tradition practice followed by over the years by business entity) under section 37 of Income Tax Act 1961, however majority of dealer did not declared the said gifts/ perks/ benefits under business income as required by sec 28 (iv) of Income Tax Act 1961. So to bring such gifts/ perks/ benefits received due to business connections by resident dealers TDS U/s 194R is introduced to track the undeclared income. Special Points: 1. Applicable from 01/07/2022. 2. Such gifts, perks or benefits provided on some special occasions like festivals (Eg. Diwali sweets), marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession. 3. For calculating Aggregate limit of Rs. 20,000 financial year is to be considered as a whole and not period after 01/07/2022. 4. Such gifts, perks or benefits provided are not in relation to business of resident person. (Eg. honorarium given to resident as guest of honor for function or event) Regards CA J P Jain 98118-97982