The Central Board of Direct Taxes (CBDT) has issued elaborate guidelines on the provisions of Section 194R of the Income Tax Act, 1961 which mandates a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 10% of the value or aggregate of value of such benefit or perquisite. These provisions are set to be effective from 1 July 2022. The CBDT has vide Circular No. 12 of 2022, dated 16 June 2022 clarified as follows:
- The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands of the recipient, and the section under which it is taxable.
- Section 194R covers the situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind.
- The deductor is required to deduct tax under said provisions in all cases where benefit or perquisite (of whatever nature) is provided.
- No tax is required to be deducted under said provisions on sales discount, cash discount and rebates allowed to customers. Relaxation however would not apply to a situation of free samples and to other benefits provided by the seller in connection with its sale.
- TDS under Section 194R is required to be deducted in the name of the recipient entity even though the benefits/perquisites may be used by owner/director/employee of the recipient entity.
- Provision of Section 194R shall not apply if the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession.
- Valuation would be based on fair market value of the benefit or perquisite, except where the benefit/perquisite provider had purchased or manufactured the said perquisite/benefit. GST will not be included for the purposes of valuation of benefit/perquisite.
- TDS is to be deducted if the product given to social media influencer for use and thereafter making audio/video, etc., is retained by the influencer.
- Reimbursement of out of pocket expense is perquisite/benefit: Any expenditure which is the liability of a person carrying out business or profession, if met by the other person is in effect benefit/perquisite provided by the second person to the first person in the course of business/profession. Except, where the invoice is raised in the name of service recipient.
- Expenditure pertaining to dealer/business conference is not to be considered as benefit/perquisite in a case where dealer/business conference is held with the prime object to educate dealers/customers and is not in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.
- The benefit or perquisite which has been provided on or before 30 June 2022, would not be subjected to tax deduction under section 194R of the Act.