Guidelines for removal of difficulties under section 194R of the Income Tax Act, 1961

Finance Act 2022 inserted a new section 194R of the Income Tax Act, 1961 (‘the Act’), which mandates a person, who is responsible for providing any benefit or perquisite (whether convertible into money or not) to an Indian resident, to deduct tax at source at the rate of 10% of the value of such benefit or perquisite. The benefit or perquisite should arise either from carrying out of business, or from exercising a profession by such resident. This provision shall be applicable with effect from 01 July 2022.


No tax shall be required to be deducted under this provision if the aggregate value of the benefits or perquisites provided or likely to be provided does not exceed INR 20,000 in a financial year.


This provision is not applicable to a person (payer / deductor), being an individual or HUF, whose sales, gross receipts or turnover does not exceed INR 1 crore in case of business or INR 50 Lakhs in case of profession, during the financial year immediately preceding the financial year in which benefit or perquisite is provided. In case of company or any other legal entity, there is no turnover threshold-based exclusion.


Sub-section (2) of section 194R conferred the power to Central Board of Direct Taxes (‘CBDT’) to issue guidelines for the purpose of removing the difficulty, if any, faced while implementing the provisions of the section. Since there were several ambiguities in regard to the applicability of section 194R, CBDT has recently issued guidelines vide Circular No. 12/2022 dated 16 June 2022 in the form of Frequently Asked Questions (‘FAQs’) to remove such ambiguities and the difficulties. The FAQs provide clarification to ten questions identified by CBDT as vital while implementing the provisions of section 194R of the Act.


The timely issuance of Circular by CBDT is a welcome step and provides much needed clarity on the scope and coverage of this section. However, there are certain aspects of this circular that may add practical difficulties and compliance burden on the payers, for instance reimbursement of out-of-pocket expenses.


In the attached newsflash, we have summarised the FAQs of the CBDT. Hope you would find the same useful.

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