Section 194R: TDS on benefits & Perquisite 

Section 194R: TDS on benefits & Perquisite 

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Section 194R: TDS on benefits & Perquisite 

Union Budget – 2022 has proposed to add Section 194R to provide for TDS on benefits & Perquisite. This is surely going to plug the revenue loopholes in the business operation. Mostly, insurance agents, Finance Agents, Mutual Funds agents who were getting lot of benefits and perquisite by way of gold coin, tours, gifts etc are going to witness an increase in their tax liability. Further, all the dealers of prominent companies will also get affected as they were also getting few prizes, awards & benefits in cash and kind which were getting unnoticed by the taxmen.
Let us know about Section 194R and its Important facets.
1. Clause 58 of Finance Bill, 2022 deals with insertion of section 194R.
2. It is applicable in case of transactions covered by Sec 28(iv) ie, in case of any perquisite or benefit arising to a resident out of business or profession, whether convertible in money or not.
3. In such cases, TDS has to be deducted at 10% of the value of perquisite or benefit.
4. First proviso to section 194R also discusses cases where benefit is wholly in kind, benefit is partly in kind and partly in cash.
5. The value of the benefit or perquisite provided to the resident during the financial year should increase Rs 20,000.
6. Case study:
a) An insurance company decided to offer LED TV of Rs. 65000/- to an agent who makes insurance premium login of say Rs. 5 Lakh in one month. Now, this will be subject to the TDS provision.
b) An home appliances company decided to offer the tour to Bangkok for the dealer who makes the purchases Rs. 15 Lakh in one month. Now, this will be subject to the TDS provision and TDS will be done on the basis of market value of the Bangkok tour
c) An interesting case may be noted in this respect. : Assessee is the film director of the Film “Villain No.1” movie. He traveled  along with his family to the USA for shooting of the movie and the travel was paid for by the producer. Will the travelling expenses be regarded as perquisite?
In David Dhawan [2005] 2 SOT 311 (Mumbai)/[2005] 92 TTJ 161 (Mumbai), it was held that when the person is travelling for performing the work and his family joins him at that place of temporary relocation, it cannot be regarded as a perquisite.
Once facts clearly evidence that facilities involved are not part of consideration but only condition of the contract/ environment for performance of the contract, there cannot be said to be any benefit or perquisite flowing to the service provider which attracts TDS u/s 194R.

2 Comments

  1. February 9, 2022
    Vipul Chheda

    Foreign tour scheme on Targeted sales given to dealers will liable to TDS. But along with dealers Agents and Sales Staff will accompanying them. Whether tour cost incurred for Agents and Sales Staff will attract TDS ?

    Reply
  2. July 23, 2022
    Naresh Jakhotia

    Travel of sales staff will be outside the purview of section 194R.

    Agents taxation will be a matter of litigation. In my view, yes. But the agent can claim the same as deduction while filing the income tax return u/s 37.

    Reply

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