Insurance Sectors employee, Company’s dealer etc  to be worst affected by TDS U/s 194R: CA Naresh Jakhotia

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. More particularly following sectors of the business would be worst affected:

1. Insurance agents

2. Finance Agents

3. Mutual Funds Agents

4. Dealers of Home Appliances

5. Dealers of various consumer brands companies.

All above categories of persons were getting a lot of benefits and perquisite by way of gold coin, tours, gifts etc. Further, it was not under the lenses of the taxmen so far

Now all above categories of the person would be adversely affected by above new provision by way of section 194R.

Let us know about Section 194R and its Important facets.

1. Clause 58 of Finance Bill, 2022 proposes to add section 194R in the Income Tax Act-1961..

2. It is applicable in case of transactions covered by Sec 28(iv) of Income Tax Act-1961. It may be noted that section 28(iv) provides that in case of any perquisite or benefit arising to a resident out of business or profession, whether convertible in money or not is liable to be taxed as “Income from Business & Profession”.

3. Now, by virtue of section 194R, TDS has to be done @  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 be at least Rs 20,000 or more for TDS U/s 194R.

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 for the companies.

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.

It may be noted that section 28(iv) was already providing for taxation of Benefits and perquisite as Business/ Profession income but there was no audit trail that was available as such. As a result, the recipient was not offering such income in the ITR and same was getting escaped from the lenses of the taxmen. Now, the TDS provision would make taxmen notice it and would make taxpayers incorporate it in their ITR.