Brief Note on Section 194R: TDS on benefit of perquisite in respect of business or profession

The Finance Act 2022 has introduced section 194R of the Income Tax Act, 1961 (‘the Act’), which provides for deduction of tax (‘TDS') by any person who is providing benefit or perquisite (whether convertible into money or not) to an Indian resident arising from carrying out a business or profession carried out by such resident person. TDS is required to be deducted at the rate of 10% (without surcharge and cess).

 

In the attached brief note we have summarized the provisions of section 194R and analyzed the potential impact on transactions undertaken alongwith additional compliance need to the business post application of this section with effect from 01 July 2022.

 

Sub-section (2) of section 194R provides that in case difficulty arises in giving effect to the provisions section 194R, the Central Board of Direct Taxes (‘CBDT’) may issue guidelines. As per recent news, government is expected to issue clarifications/ guidelines soon. Few of the attributes that need further clarification are definition of perquisite/ benefit, applicability in case of capital receipts/ other sources in the hand of recipient, reimbursement towards benefits directly availed by recipient, procedural challenges in obtaining lower deduction certificate, applicability of judicial pronouncements/ circulars pertaining to section 28(iv) of the Act etc.

 

As the TDS provisions under section 194R are applicable with effect from 01 July 2022, it is advisable for companies to examine the applicability in advance to avoid any unwanted consequences at the time of providing benefits or perquisite to business customers, dealers, agents etc.

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