All about New TDS Section 194R and Section 194S


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The Finance Bill 2022 has proposed two completely new TDS sections, 194R and 194S, in the Income Tax Act, to be made effective from 1.7.2022.

Section 194R: TDS @ 10% on Benefits or Perquisites arising out of Business or Profession

In Union Budget 2022, a new TDS section 194R, has been proposed in the Finance Bill 2022, w.e.f. 1.7.2022.

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 across a big wholesale supplier say Mr. Sonu, for procurement of electronic items for his business. The turnover of Mr. Sonu, from his wholesale business, in the immediately preceding year was Rs. 2.5 crores.
  • Mr. Ajay requests Mr. Sonu, for giving a discount in his purchases. But instead of giving a discount, Mr. Sonu sponsors the 5-star hotel accommodation and conveyance of Mr. Ajay and also gift him a Rolex watch, in order to develop friendly business relations.
  • So, Mr. Ajay makes the procurements of electronic items from Mr. Sonu, at the regular price, but simultaneously enjoys the perks of free 5-star hotel accommodation, conveyance and the Rolex watch.
  • In this new section 194R, such benefits or perquisites like free accommodation, conveyance and gifted Rolex watch, in our example, are amenable to be considered as benefits or perquisites which have been provided by Mr. Sonu to Mr. Ajay, in lieu of the discount. So, such benefits or perks are having a direct nexus with the wholesale business of Mr. Sonu, in our example.
  • This new section 194R, now makes it mandatory for Mr. Sonu, to deduct TDS @ 10% in the name/PAN of Mr. Ajay, on the value of the gifted Rolex watch and the sponsored 5-star accommodation and conveyance, since the value of these benefits or perquisites is in excess of the prescribed threshold limit of rupees twenty-thousand, in a year.
  • In this example, since Mr. Sonu is providing these benefits in kind only and as such there is no money consideration against which the stipulated TDS u/s 194R may be deducted, so, Mr. Sonu will have to pay the TDS amount @ 10% on the value of such benefits or perks in the form of gifted Rolex watch and sponsored hotel accommodation and conveyance, out of his own pocket.
  • However, if in the immediately preceding previous year, the turnover of Mr. Sonu would have been up to Rs. 1 crore only, then he would not have been required to deduct TDS under this new section 194R, as this section is not applicable in those cases, where the gross receipts in business, of the deductor, in the immediately preceding year, are up to rupees one crore or the gross receipts from profession are up to rupees fifty lakhs.
  • Also, such gifts, perks or benefits provided on some special occasions like festivals, marriage occasions, etc. may not liable for tax deduction at source, as section 194R contemplates to cover only those benefits or perquisites, which arise out of business or profession.

Section 194S: TDS @ 1% on Purchase Consideration of Virtual Digital Asset

In line with the existing TDS section 194IA requiring deduction of tax at source @ 1% on purchase of any immovable property exceeding rupees fifty lakhs in a year, the Finance Bill 2022, has proposed a new section 194S applicable w.e.f. 1.7.2022, mandating deduction of tax at source @ 1% on the payment of purchase consideration to a resident person, on transfer of a virtual digital asset, as defined in another new section 2(47A).

Further, two threshold limits, for the amount of purchase consideration, has been prescribed, to be liable for deduction of TDS under this new section 194S.

For ‘specified person’, i.e. an individual or HUF, whose total sales or gross receipts does not exceed rupees one crore, in case of business, or rupees fifty lakhs in case of profession, during the immediately preceding financial year, or, an individual or HUF, who does not have any income under the head business or profession, TDS under this new section 194S is required to be deducted only, if the amount of purchase consideration for purchase of virtual digital asset, exceeds rupees fifty thousand, during the financial year.

In case of a person other than such specified person, including firms, LLPs and companies, TDS under this new section 194S is required to be deducted only, if the amount of purchase consideration for purchase of virtual digital asset, exceeds rupees ten thousand, during the financial year.

It is also noteworthy to mention here that the Finance Bill 2022 has also proposed a new section 115BBH applicable w.e.f. 1.4.2022, mandating the taxability of the income arising from the transfer of virtual digital asset at a flat rate of 30% plus applicable surcharge and cess, with reduction only in respect of its cost of acquisition, and excluding all other reductions including adjustment of brought forward losses.

Issues requiring more Clarity from the Legislature

In respect of new section 194R:-

a. How the value of benefits or perquisites arising out of business or profession, provided in kind, will be arrived at, for the purpose of deduction of tax at source? Will it be the actual cost, fair market value in line with existing Rule 11U or 11UA or any other criteria?

In respect of new section 194S:-

a. The sale and purchase of cryptocurrencies usually takes place at the crypto exchanges, just like a stock exchange, where the identity of the buyer and seller is not revealed. So, in such cases, how it will be possible for the buyer to deduct TDS in the name of the seller of such virtual digital asset? In such cases, whether the crypto exchanges will be required to deduct the TDS?

b. The current definition of ‘Virtual Digital Asset’ in the newly proposed section 2(47A) in the Income Tax Act, excludes ‘foreign currency’ from its ambit. The most commonly used cryptocurrency, ‘Bitcoin’ has been recognized as ‘legal tender’ in the country El Salvador, w.e.f. 1.9.2021 (as per the Wikipedia), and as such, it is amenable to be considered as a ‘foreign currency’. So, the currently proposed definition of ‘virtual digital asset’ in section 2(47A), will exclude ‘Bitcoin’ from its ambit, which will defeat the very purpose and objective of bringing about this amendment.


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