Section 194R – TDS on benefits or perquisite provided

In Union Budget 2022, a new TDS section 194R has been proposed in the Finance Bill 2022, w.e.f. 1.7.2022 which requires deduction of tax at source @ 10%, by any person, providing any benefit or perquisite, exceeding Rs. 20,000 in value, in a year, to a resident, arising from the business or profession of such resident and such benefit or perquisite is in the nature of income falling under section 28(iv) of the Income tax Act.

In the current business scenario we many time notice that company incur expenditure in the name of business promotion wherein other party receives perquisite or benefits either in cash or in kinds in the course of exercising business.

Lets understand the new section with help of an example. Robin & Co. is engaged in manufacture of motor vehicles including most of component such as engines and bodies but excluding tyres, batteries etc. It transacts on regular basis with Shankar & Co. for purchase of tyres and other ancillary products. Robin & Co asked for incentive as they had long business relation for purchase done in FY’ 23. Shankar & Co offered that instead of reduction of price of product, Co will sponsor holiday package for 5 days as gesture for maintaining business relationship.

Prior to Sec 194R if recipient has not includes such incentive while calculation of Income Tax amount this never would come to notice to government. However with the introduction of this section, provider of perquisite/benefits would have to deduct TDS@10% if the value of such benefits/perquisite exceed Rs 20,000 in a year. In this case Shankar & Co. will be obliged to deduct TDS in the name of Robin & Co. while providing such perquisite in kind.

Summary of Sec 194R

Applicable from	1st July 2022
Who is responsible to deduct TDS	Any person providing benefit/perquisite to a RESIDENT
​What is meant by Benefit/Perquisite	Any sort of incentives whether in cash or in kind or partially in cash and partially in kind in the course of exercising business/profession
Value of Perquisite and TDS rate	10% TDS if value of benefit/perquisite exceed Rs Twenty Thousand
Cases where Section 194R is not applicable	If the Turnover of Business doesn’t exceed Rs One Crore. If the Turnover of Profession doesn’t exceed Rs Fifty Lakh.