194r of income tax act

Amended and updated notes on section 194R of Income Tax Act 1961 as inserted by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to deduction of tax on benefit or perquisite in respect of business or profession. Recently, we have discussed in detail Today, we learn the provisions of section 194R of Income-tax Act 1961 as amended by the Finance Act 2022. The amended provision of section 194R is effective for financial year 2022-23 relevant to the assessment year 2023-24. In this article, you will learn detail of the provisions of section 194R of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962 as provided by Ministry of Law and Justice, Government of India. Table of Contents • • • • Section-194R: Deduction of tax on benefit or perquisite in respect of business or profession [Section 194R newly inserted w.e.f. 1-July-2022 by the Finance Act 2022] Section 194R (1): Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent. of the value or aggregate of value of such benefit or perquisite: Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or p...

Section 194R – TDS on benefits or perquisite provided In the Finance Act 2022, a new TDS section 194R, has been inserted in the Income Tax Act, and which has been made applicable e.f. 1.7.2022. Eligibility criteria for tax deductor :- Any person (Resident or Non Resident) responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite u/s 194R. The responsibility for tax deduction also does not apply to a person, being individual/Hindu undivided family (HUF) deductor, whose total sales/ gross receipts/ gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, during the financial year immediately preceding the financial year in which such benefit or perquisite is provide by him. Certain condition for tax deduction :- • Only resident Payees are covered u/s 194R • The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business or from exercising a profession, by such resident. • The perquisites can either be in cash, in-kind, or partly in both of these forms. • The taxpayer does need to check the taxability of the sum in the hands of the recipient, and the nature of the asset given as ...

Summary of Section 194R Section 194R: TDS @ 10% on Benefits or Perquisites arising out of Business or Profession • Section 194R is applicable from 01-07-2022. • Rate of TDS = 10% • Limit of Deduction = Exceeding Rs. 20,000 • Deductee = Resident 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. Example of Section 194R • Say for instance, Mr. Ajay is a businessman engaged in trading of high-end electronic items. In one of his business meets, in another city, he comes ...

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Any person responsible for providing any benefit or perquisite, whether convertible into money or not, is required to ensure that the tax required to be deducted has been deducted in respect of such benefit or perquisite under Section 194R. The deductor can be a resident or a non-resident person. It is to be noted that this provision is applicable with effect from 01-07-2022. Thus, the benefit or perquisite which has been provided on or before 30-06-2022, would not be subjected to tax deduction under this provision. However, this provision shall not apply to an individual or a HUF whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of the profession during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person. Explanation to Section 194R provides that the expression ‘person responsible for providing’ means the person providing such benefit or perquisite, or in the case of a company, the company itself, including the principal officer thereof. The definition of ‘person responsible for paying’ as provided in Section 204 will not apply for the purposes of Section 194R. It means a person who has agreed to provide the benefit or perquisite and makes payment for the same to a third party shall be liable for deduction of tax and not the third party who actually provides or delivers the benefit or perquisite after accepting pay...

Any person responsible for providing any benefit or perquisite, whether convertible into money or not, is required to ensure that the tax required to be deducted has been deducted in respect of such benefit or perquisite under Section 194R. The deductor can be a resident or a non-resident person. It is to be noted that this provision is applicable with effect from 01-07-2022. Thus, the benefit or perquisite which has been provided on or before 30-06-2022, would not be subjected to tax deduction under this provision. However, this provision shall not apply to an individual or a HUF whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of the profession during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person. Explanation to Section 194R provides that the expression ‘person responsible for providing’ means the person providing such benefit or perquisite, or in the case of a company, the company itself, including the principal officer thereof. The definition of ‘person responsible for paying’ as provided in Section 204 will not apply for the purposes of Section 194R. It means a person who has agreed to provide the benefit or perquisite and makes payment for the same to a third party shall be liable for deduction of tax and not the third party who actually provides or delivers the benefit or perquisite after accepting pay...

Summary of Section 194R Section 194R: TDS @ 10% on Benefits or Perquisites arising out of Business or Profession • Section 194R is applicable from 01-07-2022. • Rate of TDS = 10% • Limit of Deduction = Exceeding Rs. 20,000 • Deductee = Resident 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. Example of Section 194R • Say for instance, Mr. Ajay is a businessman engaged in trading of high-end electronic items. In one of his business meets, in another city, he comes ...

The following points emerge from CBDT’s clarification in its Circular No.12/2022, dated 16.06.2022: • • No tax is required to be deducted under • Where a seller is selling its items from its stock in trade to a buyer and the seller offers two items free with purchase of 10 items, there would be no benefit or perquisite and no tax is to be deducted under section 194R since this is in substance selling items at a discount. The seller offers two items free with purchase of 10 items. In substance, the seller is actually selling 12 items at a price of 10 items. Let us assume that the price of each item is ` 12. In such a case, in substance, seller is selling 12 items at a discounted price of ` 10 per item. Therefore, this is discount/rebate and will not attract TDS under section 194R. • The above relaxation will not apply when a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc. In other words, additional free items of the same item which is sold will be treated as discount. • If different item is given away free with item sold and the item given away free is from stock-in-trade of seller, TDS u/s 194R is not applicable. If item given away free by seller to buyer is not from his stock-in-trade or any cash incentive is given by seller to buyer, TDS u/s 194R is applicable. CBDT’s response to Question 4 in CBDT’s Circular No.12/2022, dated 16.06.2022, is reproduced hereunder for ready reference...

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Section 194R – TDS on benefits or perquisite provided In the Finance Act 2022, a new TDS section 194R, has been inserted in the Income Tax Act, and which has been made applicable e.f. 1.7.2022. Eligibility criteria for tax deductor :- Any person (Resident or Non Resident) responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite u/s 194R. The responsibility for tax deduction also does not apply to a person, being individual/Hindu undivided family (HUF) deductor, whose total sales/ gross receipts/ gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, during the financial year immediately preceding the financial year in which such benefit or perquisite is provide by him. Certain condition for tax deduction :- • Only resident Payees are covered u/s 194R • The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business or from exercising a profession, by such resident. • The perquisites can either be in cash, in-kind, or partly in both of these forms. • The taxpayer does need to check the taxability of the sum in the hands of the recipient, and the nature of the asset given as ...