What is New TDS Section 194R?
The latest rule concerning the TDS is effective from the date July 1, 2022. The government specified the new TDS section 194R in the Income Tax Act in the Budget 2022-23. The amended section specified that a 10% TDS shall be deducted by any individual issuing any advantage or perquisite more than Rs 20,000 a year to a resident.
As per Kamlesh C Varshney, Joint Secretary in the Finance Ministry, the ministry shall clarify the doubts with respect to the applicability of the latest TDS on the advantages and perquisites.
Latest Update
- The CBDT department has published the guidelines via circular no 18/2022 under sub-section(2) of income tax section 194R. Read Circular
- The Income-tax department has shared guidelines via circular no 12/2022 related to the removal of the difficulties under sub-section (2) of section 194R. Read Circular
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Explanation Hoped Before 1st July 2022
Varshney mentioned that the people have obtained the advantages and perquisites for the business and profession but nobody was furnishing the taxes. “There is definitely a leakage here. This is why the government introduced TDS section 194R, he added.”
“But there is a lot of confusion regarding this new section and the ministry will clarify the practical difficulties before July 1,” the Joint Secretary said. He clarified the same statement while interacting with the members of the industry chamber of the Associated Chambers of Commerce and Industry of India (ASSOCHAM).
What Arrives Under the Advantages and Perquisite
Varshney mentioned that the advantages such as free medicine samples obtained by the Doctors, and foreign flight tickets for the business or profession are the income. It must be shown in the income tax return (ITR), that he said that the taxability of these advantages shall not rely on the concern that they are not being sold.
Furnishing the insurance of free samples of the medicines obtained by the doctors, Varshney mentioned that it is the income, no matter whether the Pharma company is utilising sales promotion “A company can claim a deduction for such sales promotion expenditure. However, the promotion would be a taxable income in the hands of the person receiving it. Therefore TDS needs to be deducted, he said.
Higher TDS If Missed IT Return Furnishing for AY 2021-22
There is some bad news for those who are unable to furnish the ITR for the fiscal year 2020-21 (AY 2021-22). The same is due to higher TDS being subjected to apply on the specific incomes as the revision rules that are effective from 1st April 2022. The last date to perform was Dec 31, 2021.
Short Summary of Section 194R Income Tax Act 1961
| First Applicable | 1st July 2022 |
| Type of Advantage or Prerequisites | Business or Profession |
| To be deducted on | Any Prerequisite / Benefit to RESIDENT |
| In Cash or In-Kind or Partially in Cash and Partially in Kind. | If the turnover of the profession would not be more than Rs 50 lakh. |
| TDS rate | 10% |
| No TDS | If the aggregate value would not be more than Rs 25,000 in a fiscal year. |
| If the turnover of the profession would not be more than Rs 50 lakh. | If the Business turnover is not more than Rs 1 Crore. |
| If the turnover of profession would not be more than Rs 50 lakh. |
I-T Section 194R FAQs & Guidelines Via Circular No 12/2022
Moreover, to eliminate the issue beneath section 194R, CBDT gives a detailed approach through Circular No. 12 of 2022 dated 16th June 2022. The root of the guidelines is specified as:
Q.1 – Is it essential that the individual furnishing the advantage is required to validate if the amount would be subject to tax beneath clause (iv) of section 28 of the Act, prior to deducting the tax beneath section 194R of the act?
The deducted would not need to check if the amount is subjected to tax in the recipient’s hands.
Q.2 – Is it important that the advantage should be in kind for section 194R of the act to operate?
The advantage might be in cash or kind or partially in cash and partially in kind.
Q.3 – Under section 194R of the act is there any need to deduct the tax, if the advantage is in the form of a capital asset?
No need to check if the advantage is taxable in the recipient’s hands and the section beneath which would be subjected to tax.
Q.4 – Whether sales discounts, cash discounts, and rebates are advantageous?
No tax is to be deducted u/s 194R on sales discount, cash discount, or rebate permitted to the customers.
Q.5 – How would the valuation of the advantage needed to be carried out?
Purchased: Purchase Price Manufactured: The cost to the other customers for the same advantage.
Q.6 – At various times, a social media influencer is provided to the product of the manufacturing firm so that he would utilize that product and make the audio/video to speak for that product on social media. Does the product furnished to these influencers an advantage?
- If product Retained by Influencer – TDS Deductible u/s 194R
- If the product returned by Influencer – NO TDS
Q.7 – If the reimbursement of pocket expenses made by the service provider for providing the service is advantageous?
If the invoice of the expense made is in the name of the ultimate service recipient- No TDS u/s 194R. If the invoice of the expenses made in the name of the service provider-TDS gets deducted u/s 194R.
Q.8 – If there would be a dealer conference to educate the dealers about the products of the firm- is it advantageous?
If the dealer conference ruled with the purpose of.
- Starting the New Product
- Discuss the Supremacy of his Product
- Avail the Orders
- Teaching Sales Technique
- Addressing the Issues
- Reconciliation of Accounts
The conference must not advantageous or incentivize the dealer/ customers to meet the sales target. The below-mentioned case shall be acknowledged as advantageous for section 194R:
- Leisure Trip or Leisure Component, even when the incidental to dealers/business conference.
- Discuss the Supremacy of his Product
- The family members along with the individual attending the dealers/business conference
- Teaching Sales Technique
- Addressing the Issues
- The expense of dealer/business conference for the days that are on the basis of the before stay or overstay after the date of this conference
Q.9 – Section 194R used to file that if the advantage is in kind and insufficient cash is there to attain TDS then the individual liable to furnish the same advantage would need to ensure that the tax need to be deducted would get filed towards the advantage prio discharge the advantage. How can such a person be satisfied that tax has been deposited?
- Recipient need to file the tax in the form of Advance Tax and share the copy of challan to Deductor.
- On the other hand, the advantage provider might deduct the tax beneath section 194R of the Act and file the Government
Q.10 – Section 194R will come into force from the date 1st July 2022. The second proviso to (I) of section 194R of the Act furnished the provision of the same section does not apply in which the value or aggregate of the value of the advantage furnished or seems to be furnished to a resident in the financial year does not surpass Rs 25000. It is not transparent how this limit of 25000 is to be calculated for the FY 2022-23?
- To calculate the average Value for applicability of the Limit of Rs 20000 in a financial year, the advantage furnished from 1st April 2022 would be included.
- But, any advantages filed till 30th June 2022 shall not be subject to TDS u/s 194R.
