TDS under section 194R was introduced in the Union Budget 2022, and it was made effective from 1st July 2022. Section 194R was introduced to avoid tax evasion in case of income received in the form of any perks or other non-monetary benefits from the business or profession. Before this section was introduced people used to manipulate their income by claiming expenses for the benefits or gifts provided to their distributors or channel partners under the provisions of the Income Tax Act, 1961.
Any resident person who receives any gift, perquisite, incentive, or any other financial or non-financial benefit from a business or profession in cash, kind, or partially in cash and partially in kind and the value of those benefits or perquisites exceed ₹ 20,000 to one beneficiary during the financial year.
Who is liable for deducting TDS u/s 194R
Any business or profession giving benefits or perquisites to its agent, channel partner, dealer, distributor, or any other person should deduct TDS @10% if the monetary value of such gift or perquisites exceeds ₹ 20,000 during the financial year.
The person providing such benefits or perquisites should ensure that TDS is deducted and paid in respect of such benefits before releasing such benefits or perquisites.
The liability can be discharged by any of the below options:
- If the payee gives cash to payer to settle the TDS obligation and the payer deposit the amount;
- Deductor may either gross-up the net amount or pay tax out of his own pocket;
- If the beneficiary has a credit balance, the payer can deduct the TDS and pay the beneficiary the net amount.
- Any individual/HUF are not required to deduct TDS u/s 194R if the total turnover do not exceed ₹ 50 Lakh in the case of a profession and ₹ 1 crore in the case of business in the immediately preceding financial year.
- TDS will not be deducted if there is no business relationship.
- Tax is not deductible under section 194R if the recipient is a non-resident.
- TDS is not applicable to employees receiving benefits from their employer
Section – 194R (Tax deductible on benefit or perquisite in respect of business or profession) of the Income Tax Act, 1961
Nature of Payment – Perquisite, gift or, benefit provided in cash or kind or partially in cash and partially in kind.
Limit for Deduction – Above ₹ 20,000 during the relevant financial year to each recipient
Rate of TDS – 10%
Deductor – Any person (Other Than Individual/HUF) and Individual/ HUF having Turnover above ₹ 1 Cr. or professional receipts above ₹ 50 Lakh i.e., Resident or Non-Resident
Deductee – Any resident individual
Written by – Nishant Goel
At MAS, we assist our clients with various income tax compliances, including income tax assessments, ITR filings, tax advisory, TDS matters other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Section 194R: Tax Deductible on Perquisite or Benefit in Business, kindly contact us