TDS on perquisites: CBDT issues clarifications on Newly introduced Section 194R

Finance Act 2022 inserted a new section 194R in the Income-tax Act, 1961 (hereinafter referred to as “the Act’) with effect from 1st July 2022.

The new section mandates a person who is responsible for providing any benefit or perquisite to a resident to deduct tax at source @10% of the value or aggregate of the value of such benefit or perquisite before providing such benefit or perquisite. The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business or from exercising a profession, by such resident.

This deduction is not required to be made if the value or aggregate of the value of the benefit or perquisite provided or likely to be provided to the resident during the financial year does not exceed twenty thousand rupees.

The responsibility of tax deduction also does not apply to a person, being an Individual/Hindu undivided family (HUF) deductor, whose total sales/ gross receipts / gross turnover from business does not exceed one crore rupees or from profession does not exceed fifty lakh rupees during the financial year immediately preceding the financial year in which such benefit or perquisite is provided by him.

Sub-section (2) of section 194R of the Act authorizes the Board to issue guidelines for the removal of difficulties with the approval of the Central Government. These guidelines are required to be laid before each House of Parliament and are binding on the income-tax authorities and the person providing the benefit or prerequisite.

Accordingly in the exercise of the power conferred by sub-section (2) of section 194R of the Act, the Board, with the prior approval of the Central Government, hereby issues the guidelines.

An important issue that is clarified is that no tax is required to be deducted under Section 194R of the Act on sales discounts, cash discounts, and rebates allowed to customers.

The Guidelines have also clarified that GST will not be included for the purposes of valuation of benefit/prerequisite for TDS under section 194R of the Act.

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

Click on the Below Link to Download the Guidelines: