The new section of TDS 194R is applicable wef from 1st July 2022 to all the assessees except Individuals and HUF subject to Tax Audit.
Those individuals and HUF having tax turnover of exceeding Rs. 1 cr in of business and Rs. 50 lakhs in case of profession will be under the purview of new TDS section.
Section 194R has been brought by the Finance Bill, 2022 with an applicability from 1st July, 2022.
The new section has made the benefit or perquisite exceeding in value Rs. 20,000 in a particular financial year to a resident which shall be arising out of business or profession and should be in the nature of income as referred to in section 28(iv) of the Income Tax Act.
The new TDS provisions mentioned in section 194R dealing with perquisites but it is different from the perquisites as referred u/s 17(2) which is taxable under the head salary and TDS provisions will be applicable as per section 192.
The benefit or perquisite referred to in section 194R are those perks, benefits, amenities and facilities which may be in cash or kind or any combination thereof arising out of business or profession of a resident person.
As per sec 28 The following amount shall be chargeable to income tax under the head “Profits and Gains of business and profession”:
(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of profession.
Purpose of introduction of Section 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.
The CBDT has clarified that sales discount, cash discount and rebates will not be chargeable under this section. Further such gifts, perks and benefits provided on special occasions and festivals may not be liable for TDS deduction under section 194R
FAQs on Section 194
Q. When does new section 194R become appliable?
A. Section 194R becomes applicable wef 1st July, 2022.
Q. Who is liable to deduction tax at source under this section?
A. All assessees except individuals and HUF not liable to tax audit.
Q. Is Rs. 20,000/- limit for per person or per financial year?
A. Rs. 20,000/- limit applies per person per financial year.
Q. Whether the perks arising out of salary income are taxable under section 194R?
A. No, for perks arising out of salary section 192 is there, section 194R is only for the perks and benefits arising out of business and profession.
Q. Whether section 194R applicable for cash benefits only?
A. No, section 194R applies to cash as well as benefits in kind.