Home / Media  / Quotes

CBDT issues fresh guidelines on applicability of new TDS provision

The Income Tax department on 16 June issued guidelines related to applicability of new TDS provision regarding benefits received in a business or profession. Adding more, the IT department said that these perquisites can either be in cash, in kind or partly in both of these forms.

Among other details, the Central Board of Direct Taxes (CBDT) said the taxpayer do need to check the taxability of the sum in the hands of the recipient, and the nature of asset given as benefit or perquisite is not relevant. Also, the capital assets given as benefit or perquisites are covered within the scope of Section 194R, it added.

Also Section 194R shall apply to 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 new provision comes into effect from 1 July, 2022

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

The Budget 2022-23 brought a new section in the IT Act -- 194R, requiring deduction of tax at source at the rate of 10 per cent by any person and provides any benefit or perquisite exceeding ?20,000 in a year to a resident which arise from the business or profession of such resident.

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

While for doctors working as consultants with a hospital and receiving free samples, TDS would ideally apply on hospital first, which in turn would require to deduct tax under Section 194R with regard to consultant doctors.

CBDT clarified that as an alternative to remove the difficulty, the original benefit or perquisite provider may directly deduct tax under Section 194R with regard to the consultant doctor as a recipient.

The government department made it clear that Section 194R will apply if the benefit or perquisite is provided to a government entity, like government hospital, not carrying on business or profession.

Apart from hospitals, CBDT also provided a breather on sales discount, 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.

Experts view that with this new provision by CBDT, taxpayers will 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 recipient not engaged in business or profession etc., could open up a host of practical issues which taxpayers should brace themselves with," PTI quoted Nangia Andersen LLP Partner Sudin Sabnis as saying.

While AKM Global Head of Tax Markets Yeeshu Sehgal said the guidelines for section 194R could prove effective in preventing tax leakage.

AMRG & Associates' Director Om Rajpurohit opined through this circular, the government has practically handled all the key issues including whether sales discounts, cash discounts, and rebates are benefits or perquisites etc.


Please click here to view full story on Mint.