Section 194R of Income Tax Act: Deduction of Tax on benefit or Perquisite in Respect of Business or Profession

As per the Memorandum of Finance Bill, 2022; Taxable income as per Clause (iv) of Section 28 of the Act, the value of benefit or perquisite paid in money or not and arising from business or profession is to be charged as Taxable Income in hand of recipient of such benefit/perquisite.

But, in major cases such Taxable Person does not report above benefits/perquisite in Income Tax Return leading to false information in Tax Return as well as major benefit are not form of money but tour package given to agents/dealers/distributors for achieving sales/leads targets.

So, To Mitigate said Tax leakage, Finance Ministry introduce section 194R for ensuring the tax has been deducted and no such false Tax Information in Tax Return by Taxable Person.

Bare Act Provision of 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.

Below Explanation Inserted by the Finance Act, 2023, w.e.f. 1-4-2023.

Explanation [1].— 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.]

Explanation [2].— For the removal of doubts, it is clarified that the provisions of sub-section (1) shall apply to any benefit or perquisite, whether in cash or in kind or partly in cash and partly in kind.

Analysis of Section 194R

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Sources

Bare Act of 194R

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