Capital assets given as benefits under Section 194R scope

In a recent set of guidelines on this issue, the Income Tax Department, said the payer/deductor need not check the taxability of the sum in the hands of the recipient and the nature of assets given as benefit or perquisite is not relevant.

New TDS Rules | Central Board of Direct Taxes

Tax Deducted at Source (TDS) Rules: Section 194R shall apply to sellers giving incentives, other than discounts or rebates, which are in cash or kind e.g., car, TV, computers, gold coin, mobile phone, sponsored trip, free tickets, medicine samples to medical practitioners. (Representative image)

Pursuant to the Budget announcement, the new income tax provision for TDS on benefits or perquisites, in cash or kind, will be effective July 1. The new Section 194R requires deduction of tax at source at 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.

In a recent set of guidelines on this issue, the Income Tax Department, said the payer/deductor need not check the taxability of the sum in the hands of the recipient and the nature of assets given as benefit or perquisite is not relevant. Even capital assets given as benefit or perquisite are covered within the scope of Section 194R.

This tax provision is likely to affect professionals such as doctors, social media influencers, but experts say the rules won’t change for salaried employees. “It’s applicable only for those doing business and profession, not individuals or salaried employees. Salaried employees are already covered under Section 192 of Income-tax Act, no change in rules for them,” said Neeraj Agarwala, partner, Nangia Andersen India.

Section 194R will apply to sellers giving incentives, other than discount or rebate, which are in cash or kind e.g., car, TV, computers, gold coin, mobile phone, free ticket, medicine samples to medical practitioners, sponsored trip. The provision brought in the FY23 Budget will apply to benefits both in cash or kind.

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Agarwala said, “Now the applicability has been extended to include both cash and kind. Benefits were taxed earlier but it was difficult to track/monitor. Now it’ll become easier for the tax department to monitor with the TDS levy.”

The tax department has clarified that in case of doctors receiving free samples of medicines while employed in a hospital, Section 194R would apply on distribution of free samples to the hospital. The hospital as an employer may treat such samples as 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 apply to hospitals first which in turn would require to deduct tax under Section 194R with regard to consultant doctors. To remove this difficulty, 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 government hospital, not carrying business or profession.

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A breather has been given on sales discount, cash discount and rebates allowed to customers by excluding them from Section 194R as their inclusion would put the seller into difficulties.