Person providing benefit or perquisite, or in case of a company, the company itself including the principal officer thereof (defined under explanation to section 194R)

[Other than individual or a HUF, 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 preceding financial year]

Resident person receiving any benefit or perquisite arising from business or the exercise of a profession carried on by him

10 per cent of the value or aggregate of value of benefit or perquisite

No TDS where the value or aggregate of value of benefit or perquisite is upto Rs. 20,000

Ques 1: Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under clause (iv) of section 28 of the Act, before deducting tax under section 194R of the Act?

No, there is no further requirement to check whether the amount is taxable in the hands of the recipient or under which section it is taxable while deducting TDS u/s 194R as required u/s 195 which specifically mentions deduction on any other sum chargeable under the provisions of this Act at the rates in force.

Ques 2: Is it necessary that the benefit or perquisite must be in kind for section 194R of the Act to operate?

Proviso to section 194R of the Act clearly brings in its scope the situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind.

Ques 3: Is there any requirement to deduct tax under section 194R of the Act, when the benefit or perquisite is In the form of capital asset?

As aforesaid, there is no need to check whether such benefit or perquisite is taxable in hands of recipient. Also, various courts have held that many benefits or perquisites to be taxable even though one can argue that they are in the nature of capital asset. Thus, the deductor is required to deduct tax under section 194 R of the Act in all cases where benefit or perquisite (of whatever nature) is provided.

Ques 4: Whether sales discount, cash discount and rebates are benefit or perquisite?

Although, such discounts also qualify as benefit to the buyer but to remove such difficulty it is clarified

that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers. However, the relaxation would not apply to a situation of free samples and this relaxation shall not be extended to other benefits such as a free ticket to an event, sponsoring the trip of recipient.

Also, TDS is required to deducted in in the name of recipient entity since the usage by owner/director/employee/relative is by virtue of their relation with the recipient entity and in substance the benefit/perquisite has been provided by the person to the recipient entity.

For Instance, the free medicine sample may be provided by a company to a doctor who is an employee of a hospital. The TDS under section 194R of the Act is required to be deducted by the company in the hands of hospital

The provision of section 194R of the Act shall not apply if the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession.

Ques 5: How is the valuation of benefit/perquisite required to be carried out?

Valuation would be based on fair market value of the benefit or perquisite (excluding GST) except in

following cases:

• The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. In that case the purchase price shall be the value for such benefit/perquisite.

• The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.

Ques 6: Many a times, a social media influencer is given a product of a manufacturing company

so that he can use that product and make audio/video to speak about that product in social media. Is this product given to such influencer a benefit or perquisite?

If the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act. However, if the same is returned then it will not be in nature of benefit/ perquisite.

Ques 7: Whether reimbursement of out of pocket expense incurred by service provider in the course of rendering service is benefit/perquisite?

Illustrated by an example:

Let us assume that a consultant is rendering service to a person "X" for which he is receiving consultancy fee. In the course of rendering that service, he has to travel to different city from the place where is regularly carrying on business or profession. For this purpose, he pays for boarding and lodging expense incurred exclusively for the purposes of rendering the service to "X" and the same is reimbursed by “X”.

Case 1: If the invoice is obtained in the name of "X" and accordingly, if paid by the consultant, is reimbursed by "X". Then, then the reimbursement made by "X" being the service recipient will not be considered as benefit/perquisite for the purposes of section 194R of the Act.

Case 2: If the invoice is not in the name of "X" and the payment is made by "X" directly or reimbursed, it is the benefit/perquisite provided by "X" to the consultant for which deduction is required to be made under section 194R of the Act.

Ques 8: If there is a dealer conference to educate the dealers about the products of the

company - Is it benefit/perquisite? 

The expenditure pertaining to dealer/business conference would not be considered as benefit/perquisite is held with the prime object to educate dealers/customers about any of the following or similar aspects:

• new product being launched

• discussion as to how the product is better than others

• obtaining orders from dealers/customers

• teaching sales techniques to dealers/customers

• addressing queries of the dealers/customers

• reconciliation of accounts with dealers/customers

However, such conference must not be in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.

Further, in the following cases the expenditure would be considered as benefit or perquisite for the purposes of section 194 R of the Act:

• Expense attributable to leisure trip or leisure component, even if it is incidental to the Dealer/business conference.

• Expenditure incurred for family members accompanying the person attending dealer/business conference.

• Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.

Ques 9: Section 194R provides that if the benefit/perquisite is in kind or partly in kind (and cash is not sufficient to meet TDS) then the person responsible for providing such benefit or perquisite is required to ensure that tax required to be deducted has been paid in respect of the benefit or perquisite, before releasing the benefit or perquisite. How can such person be satisfied that tax has been deposited?

Such recipient would pay tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in TDS return along with challan number. Form 26Q has been amended to include provisions for reporting such transactions.

In the alternative, as an option to remove difficulty if any, the benefit provider may deduct the tax under section 194R of the Act and pay to the Government. The tax should be deducted after taking into account the fact the tax paid by him as TDS is also a benefit under section 194R of the Act. In the Form 26Q he will need to show it as tax deducted on benefit provided.

Ques 10: Guidelines for Determination of Threshold Limit of Rs. 20,000 of the aggregate value of any Benefit or Perquisite for the FY 2022-23, under section 194R to be made applicable w.e.f. 1.7.2022

calculation of value or aggregate of value of the benefit or perquisite triggering deduction under section 194R of the Act shall be counted from 1 sl April, 2022. However, The benefit or perquisite which has been provided on or before 30lh June 2022, would not be subjected to tax deduction under section 194R of the Act.