CBDT has recently issued new guidelines related to section 194R. It has been told that what will be the rules of TDS under this section on business related benefits or other facilities. This section has been introduced in the budget for the financial year 2022-23.
The provisions of section 194R will be applicable from 1st July, 2022. This will be applicable to a business or person who gives benefits or other facilities of more than Rs 20,000 in any one financial year to another person. These payments should be for business benefits or other facilities. The person giving benefits or other facilities will have to deduct 10 percent TDS on this payment.
As the date of implementation of this section is approaching, many questions related to it are being asked. The CBDT has clarified the provisions related to this section in the circular issued on June 16.
Following are the salient features of this circular
1. The business or person paying the benefit or other facilities need not check whether the amount (amount linked to the benefit) is chargeable to tax after passing into the hands of the person receiving it. It will be taxed under section.
2. It is necessary to deduct tax on benefits or other facilities whether in cash or in kind or in the form of little cash and little thing.
3. Benefits or other facilities may be in the form of capital transactions. Several examples have been given in the CBDT circular, including Consent Decrees, Loan Waiver, Rent Free Accommodation, Furniture or Fixtures given to the Director of the Company, Car, Land etc. given as a gift.
4. The CBDT circular clarifies that although discounts, cash discounts or rebates given to customers on the listed sale price, they are logically covered under benefits and other benefits. However, these can put the seller in trouble and are therefore kept outside the purview of this section.
Sales discounts, cash discounts or rebates are given to the customers. There are situations in which the seller gives more quantity at the same price. For example, at the price of 10 units, he gives 12 units instead of 10 units.
The circular also provides examples that can be considered for the purpose of deducting TDS:
A. Distribution of free samples
B. Where a person gives incentives (other than discounts, rebates) in the form of cash or things in the form of cars, TVs, computers, gold coins, mobile phones etc.
C. When a person sponsors trips of recipients and their relatives on accomplishing a specific target.
D. When a person gives a free ticket for an event.
E. When a person gives free medicine samples to medical practitioners.
If the recipients are business entities then these facilities/benefits can be used by the owner/director/employee and TDS will be deducted for such entity.
TDS will not be deducted on benefits or facilities provided to a government entity such as a government hospital which does not carry on any business or profession.
If the person offering such benefits buys them, then the value of such facilities/benefits will be applied at the purchase price which he uses to sell them to his customers.
5. If a product is given to a social media influencer for making video or audio, then it will be taxable when such person using it retains that product. However, if the social media influencer returns the product after use, then it will not be taxed.
6. TDS will be applicable if the benefits or other facilities are provided by way of reimbursement to Consultants or other service providers/associates. For example, if traveling or boarding or lodging facility is provided to a consultant, then TDS will have to be deducted for claiming expenses as reimbursement.
TDS will be applicable if the payment is made directly to the provider by the business entity. For example, the service provider should be given hotter instead of reimbursement of expenses.
7. Expenses which will be in the nature of business conferences.
TDS will not be charged if the dealer/business conference is organized to educate the dealer/customers about the following
(i) New product being launched
(ii) Discussion to show how this product is better than others
(iii) To take orders from dealers/customers
(iv) To teach sales techniques to the dealers/customers
(v) To answer the queries of the dealers/customers
(vi) For reconciliation of accounts with dealers/customers
However, TDS will have to be deducted in the following situations
(i) If the conference is being organized to provide incentives/benefits to the dealers who have achieved a specific target
(ii) Expenses, if any, of the ledger component associated with the conference
(iii) If a member of the family of the person attending the conference is attending, then the expenses incurred thereon.
(iv) on expenses incurred by a family member on or after the date of the conference
8. If the benefit is in kind or partly in kind (and the cash is not sufficient to meet TDS), the tax paid by the provider, if not recovered from the recipient, is passed on to the recipient Gaya benefit will be considered.
In the event that the same is paid by the recipient as advance tax, the provider will have to obtain a declaration and a copy of the advance tax payment challan from the recipient and report it in Form 26Q.
9. No tax will be deducted if any benefit/ other facilities are provided before 1st July, 2022. But this amount will be used for calculation of limit of Rs 20,000. I believe that this circular has expanded the scope of this section to cover all situations where benefits are being provided not only for promotion of business but also for other administrative expenses.
Now business entities and recipients will have to keep a detailed record of benefits to avoid legal battle or process. And for this many business entities will have to take professional advice before making such expenditure. This will also make the job of auditors difficult as they will now have to scrutinize the transactions in more detail.
In short, with the implementation of these provisions, we are moving towards an era of greater tax compliance and tax disputes and moving away from Ease of Doing Business.