Section 194R of the Income Tax Act


Summary of Section 194R

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

  1. Section 194R is applicable from 01-07-2022.
  2. Rate of TDS = 10%
  3. Limit of Deduction = Exceeding Rs. 20,000
  4. 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 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.

Extract Section 194R from Income Tax Act, 1961

Deduction of tax on benefit or perquisite in respect of business or profession

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 partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:

Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:

Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of 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.

(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.

Explanation.—For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.

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