FAQ’s of 194R-TDS on benefits or perquisite provided

A new Section of TDS in the Finance Act 2022 will be significant for non-salaried people starting on July 1st, 2022. Let’s break the provision down.

Any person, resident or non-resident, who is in the position of providing a resident any benefit or perk—whether convertible into money or not—arising from their professional or business activities must first make sure that tax has been deducted in accordance with Section 194R before giving the resident the benefit or perk, as the case may be.

Q 1 Who is liable to Deduct Tax under section 194R?

Ans. Any Person (resident or non-resident) responsible for providing any benefit or perquisite, whether convertible into money or not, arising from business or the profession to a resident person.

Gifts or perquisite can be given in either forms,

• Cash,
• Kind,
• Capital assets,
• Mixed of all above forms;      

However, there is no further requirement to check whether such gifts or perquisite is taxable in the hands of recipient or not.

However, this provision does not apply to an individual or a HUF whose total sales, turnover, or gross receipts in the preceding financial year did not exceed Rs. 1 crore in the case of a business, or Rs. 50 lakhs in the case of a profession.

Q2 Who is the deductee for section 194R?

Ans. Tax is required to be deducted if the benefit or perquisite is provided to a resident person and it is arising from business or the exercise of a profession by such resident.

Exceptions: –

• If cash discount, trade discount or rebate is given.
• Supplying of free goods under promotional schemes e.g. buy 1, get 1 free.
• If benefit or perquisite is provided to a government entity.
• If an employer-employee relationship exists.
• If recipient is non-resident.
• If the benefit or perquisite do not have a connection with the business or profession.
• If the benefit or perquisite are provided to a customer who does not engage in business or exercise of a profession. E.g. if a business entity gifts valuable items to its resident customer and if the customer is not carrying any business or profession, then TDS is not deducted.

Q 3 When TDS is to be deducted?

Ans. When the aggregate value of Gifts or perquisite exceeds Rs. 20000 in a Financial year. For example in given below situations TDS has to be deducted (this list is not complete): –

• When a person gives free samples.
• When a person gives free tickets of an event or program.
• When a person sponsors a trip for the recipient or on command for third person.

TDS will be deducted only after 1st July 2022 but for calculation of aggregate amount any gift or perquisite provide before 1st July is also counted.

Q 4 What is the rate of TDS under section 194R?

Ans. Person providing the benefit or perquisite has to ensure that tax has been deducted at the rate of 10% of the value or aggregate value of benefits.

The assesse shall have no option to apply for a certificate of lower deduction or nil deduction under this provision, even if his estimated tax liability justifies such certificates. In a similar vein, the payee cannot argue that tax wasn’t deducted based on self-declaration on Form 15G or Form 15H.

Q 5 How to compute value of Gifts or perquisite?

• If gifts or perquisite is purchased from outside, then actual purchase price.
• If gifts or perquisite provider manufactures such item in house, then the sale price of that.

Q 6 If item is given for promotion or advertisement, then also supplier have to deduct tax?

Ans. If item returned to supplier after promotion then no requirement to deduct tax.

Let’s recapitulate: –

Particulars	Section 194R
Tax Rate	10%
Threshold limit	No tax is deductible in case the aggregate value of the benefit or perquisite to a resident does not exceed Rs 20000/- during financial year.
Non Applicability	In case of business – Individual or HUF, whose total sales or turnover does not exceed Rs. 1 Crore or in case of Profession – Gross receipts does not exceeds Rs. 50 Lakhs, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided.