CBDT Issues Guidelines On Applicability Of New TDS Provision

The Central Board of Direct Taxes (CBDT) also said that the payer/deductor need not check the taxability of the sum in the hands of the recipient, and the nature of the asset given as a benefit or prerequisite is not relevant
Source: Shutterstock
Source: Shutterstock

The income tax department on Thursday issued guidelines on the applicability of the new TDS provision regarding benefits received in a business or profession and said that such perquisites can either be in cash or in-kind or partly in both of these forms.

The Central Board of Direct Taxes (CBDT) also said that the payer/deductor need not check the taxability of the sum in the hands of the recipient, and the nature of the asset given as a benefit or prerequisite is not relevant. Even capital assets given as benefits or perquisites are covered within the scope of Section 194R.

Also, Section 194R shall apply to the seller giving incentives, other than discount or rebate, which are in cash or kind e.g., car, TV, computers, gold coin, mobile phone, sponsored trip, free ticket, medicine samples to medical practitioners.

The Budget 2022-23 brought in the provision of Tax Deducted at Source (TDS) on such income to check tax revenue leakage.

The Budget brought in a new section, 194R, in the I-T Act which requires deduction of tax at source at the rate of 10 per cent by any person, providing any benefit or perquisite exceeding Rs 20,000 in a year to a resident, arising from the business or profession of such resident.

The new provision comes into effect from July 1.

CBDT clarifies that in the case of doctors receiving free samples of medicines while employed in a hospital, Section 194R would apply on the distribution of free samples to the hospital. The hospital as an employer may treat such samples as a taxable perquisite for employees and deduct tax under Section 192. In such cases, the threshold of Rs.20,000 has to be seen with respect to the hospital.

For doctors working as consultants with a hospital and receiving free samples, TDS would ideally apply to the hospital first, which in turn would require to deduct tax under Section 194R with regard to consultant doctors. To remove this difficulty, CBDT clarifies that as an alternative, the original benefit or perquisite provider may directly deduct tax under Section 194R with regard to the consultant doctor as a recipient. 

Section 194R shall not apply if the benefit or perquisite is provided to a government entity, like a government hospital, not carrying on business or profession.

The CBDT also provided a breather on sales discounts, cash discount and rebates allowed to customer by excluding them from the purview of Section 194R as their inclusion would put the seller into difficulties.

Nangia Andersen LLP Partner Sudin Sabnis said it is though apparent that taxpayers would need to gear up their systems and tracking mechanisms for various routine transactions to identify and withhold tax on such benefits and perquisites.  

"Certain aspects, particularly applicability of benefits provided in cases of the recipient not engaged in business or profession etc, could open up a host of practical issues which taxpayers should brace themselves with," he said.

AKM Global Head of Tax Markets Yeeshu Sehgal said the guidelines for section 194R could prove effective in preventing tax leakage as it has tried to take in its sweep-wide and diversified nature of transactions which are difficult to envisage.

"The transactions include products received by social media influencers, if they retain the products with them, sponsoring a trip for a person or his/her relatives upon achieving certain targets, providing a free ticket for any event and even when a person gives medicine samples free to medical practitioners. Every benefit is given in kind or partly in cash and or in the form of capital assets are also covered, hence it is all-encompassing," Sehgal said.

Om Rajpurohit- Director (Corporate & International Tax) with AMRG & Associates said through this circular, the government has practically handled all the key issues, such as; whether sales discounts, cash discounts, and rebates are benefits or perquisites; how a product would be regarded if it was given to a social media influencer; what will be the value of benefit/ prerequisite; or how to calculate the aggregate value of benefit/perquisite triggering the twenty thousand threshold limit under section 194R of the Act. 

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