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

ParticularsDetails
ApplicabilityWhen Any Person provides any Benefit or Perquisite to a Resident arising from Business or Profession by such Resident.
Rate of Deduction10 %
DeductorAny Person Paying Benefit/Perquisite arising from Business/Profession
DeducteeResident Person
Time of DeductionBefore Providing Such Benefit/Perquisite
Non Applicability / ExemptionValue/Aggregate Value of Benefit/Perquisite provided does not Exceed Rs. 20,000/- in a Financial Year per Deductee;
OR
Deductor is Individual or HUF and its Total Sales, Gross Receipts or Turnover does not exceed Rs. 1 Crore in Case of Business or Rs. 50 lakh in case of Profession during the Financial Year immediately preceding the Financial Year in which such benefit/perquisite Provided;
OR
Benefit/Perquisite has No Connection with Business or Profession.
Example for Identify DeductorA Person agrees to arrange Tours for its Dealers/Distributors or Agents who achieved certain Target, it is a Person(Payer) that has to comply with Section 194R, Not the Hotels, Airlines or Tour Operators.

Frequently Asked Questions

What is Section 194R of the Income Tax Act?

Section 194R deals with the deduction of tax on benefits or perquisites provided by any person to a resident arising from business or profession.

Who is responsible for deducting tax under Section 194R?

Any person providing benefits or perquisites arising from business or profession to a resident is responsible for deducting tax under Section 194R.

What is the applicable rate of deduction under Section 194R?

The rate of deduction under Section 194R is 10% of the value or aggregate value of the benefit or perquisite.

When should tax be deducted under Section 194R?

Tax should be deducted before providing the benefit or perquisite to the resident.

Are there any exemptions under Section 194R?

Yes, exemptions apply if the value or aggregate value of the benefit or perquisite provided does not exceed Rs. 20,000 in a financial year per deductee. Additionally, certain criteria for individuals and Hindu undivided families (HUF) are mentioned in the section.

What is the significance of the financial thresholds for individuals and HUFs under Section 194R?

The section does not apply to individuals or HUFs whose total sales, gross receipts, or turnover does not exceed Rs. 1 crore in the case of business or Rs. 50 lakh in the case of a profession during the preceding financial year.

Is Non Business Activity applicable for Deduction under Section 194R?

Section 194R does not apply if the benefit or perquisite has no connection with business or profession.

What happens if the part in cash is not sufficient to meet the tax liability for the whole benefit or perquisite?

The person providing the benefit or perquisite must ensure that the tax required to be deducted has been paid before releasing the benefit or perquisite.

What does the term “person responsible for providing” mean?

The term “person responsible for providing” refers to the person providing the benefit or perquisite. In the case of a company, it includes the company itself, including the principal officer thereof.

For Find all Rates of TDS for Different Payments; Refer Complete TDS Rate Chart.

Sources

Bare Act of 194R

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