Update: Issue of Circular to provide guidelines in relation of deduction of tax at source on benefit or perquisite in respect of business or profession

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Update: Issue of Circular to provide guidelines in relation of deduction of tax at source on benefit or perquisite in respect of business or profession

Tejasvi

@tejasvi

June 24, 2022

Public Policy

262

The Central Board of Direct Taxes recently issued Circular No. 12 of 2022 dated 16 June providing clarification in relation to applicability of Tax Deduction at Source (TDS) provisions on benefit/ perquisite in respect of business or profession under S.194R of Income-tax Act, 1961 (IT Act). The provisions under S.194R will be effective from July 1, 2022. The Circular has issued the following clarifications:

The deductor is not required to check the taxability of benefit/ perquisite in the hands of the recipient.

Tax under S.194R is required to be deducted whether the benefit or perquisite is in cash or in kind.

Benefit/ perquisite provided in the form of a capital asset (like car, land etc.) will be taxable in the hands of the recipient.

No TDS is required under S.194R on sales discount, cash discount and rebates allowed to customers.

When a seller offers free additional goods, S.194R would not apply. However, where free samples are given, this relaxation would not apply.

The provisions of S. 194R shall not apply if the benefit/ perquisite is provided to a government entity (like government hospital not carrying on business or profession).

The expenditure pertaining to dealer/business conference will not be considered as benefit/perquisite for the purposes of S. 194R in cases where dealer/business conference is held with the prime object to educate dealers/customers about new product launch, etc. However, such conference must not be in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.

Products given to social influencers - In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics, etc and if the product (like car, mobile, outfit, cosmetics, etc.) is returned to the manufacturing company after using for the purpose of rendering service, it will not be treated as a benefit/perquisite under S. 194R. However, if the product is retained, then it will be in the nature of benefit/perquisite and tax is required to be deducted under S. 194R.

The valuation of benefit/ perquisite would be based on fair market value of the benefit or perquisite except in the following cases -

In case of purchase of benefit/perquisite before providing it to the recipient – The purchase price shall be the value for such benefit/perquisite.
In case of manufacture of items given as benefit/perquisite - The price charged to customers for such items shall be the value for such benefit/perquisite.
GST will not be included for the purposes of valuation of benefit/perquisite for TDS under S. 194R.

Benefit/ perquisite provided on or before 30 June 2022 would not be subjected to tax deduction under section 194R.

On a reading of the above Circular, we believe that the scope of S. 194R has been kept very wide and there may be certain areas where the industry may need guidance/ clarification. In case you require NASSCOM to make a representation to Ministry of Finance or to conduct a webinar to discuss the provisions of the said section, clarifications issued and open issues in detail, kindly let us know and we will be happy to take it forward.

Copy of the Circular is attached for your reference.

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Tejasvi