Application of Section 194R

Application of
Section 194R
TDS on Benefit or Perquisite in respect of
Business or Profession
Coverage
 Introduction of Section 194-R

 Applicability of Section 194-R
 CBDT guidelines
 Free Samples by Pharma
Company
 Free Sample to Social Media
Influencer
 Travelling Expenses
 Expenditure on Business
Conference
 Value of benefit/perquisites
Introduction of Section
194-R
Background
As per Memorandum explaining Finance Bill 2022, Hon’ble Finance Minister had made a reference to
section 28(iv) of the Act that provides for taxability of value of any benefit or perquisite, whether
convertible into money or not, arising from business or exercising of a profession. The said income is
chargeable to tax under the head ‘Profits and Gains from Business or Profession’ in the hands of recipient
of such benefit or perquisite. Section 28(iv) was introduced in the Act in 1964 to expand the scope of
income in the hands of recipient of benefit or perquisite.
Hon’ble Finance Minister had expressed concerns that many times, recipient of such benefit or perquisite
does not report such income while filing the tax return, which results into under-reporting of income and
income goes untaxed. To avoid such mischief and to widen the tax base, section 194R is introduced in the
Act, requiring deduction of tax in case a person provides benefit or perquisite.
From the Memorandum, it is evident that provisions of section 194R are introduced to cover the benefit or
perquisite of a nature referred in section 28(iv) of the Act.
The above section is applicable with effect from 01 July 2022.

Bare Act
Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into
money or not, arising from business or the exercise of a profession, by such resident, shall, before
providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been
deducted in respect of such benefit or perquisite at the rate of ten percent of the value or aggregate of
value of such benefit or perquisite:
 Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly
in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in
respect of whole of such benefit or perquisite, the person responsible for providing such benefit or
perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has
been paid in respect of the benefit or perquisite:
 Provided further that the provisions of this section shall not apply in case of a resident where the
value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident
during the financial year does not exceed twenty thousand rupees:
 Provided also that the provisions of this section shall not apply to a person being an individual or a
Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees
in case of business or fifty lakh rupees in case of profession, during the financial year immediately
preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such
person. (2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with
the previous approval of the Central Government, issue guidelines for the purpose of removing the
difficulty.
Applicability of Section
194-R
Applicability
Guidelines of CBDT
CBDT Guidelines
 No TDS on sales discount , cash discount and rebates allowed to customers.

 TDS is not Applicable on Buy one Get one free offer as is it difficult of seller to deduct TDS
on benefit or perquisite but in case of free samples TDS is applicable
 In the following scenarios, the tax shall not be deducted u/s 194R:
 If an employer-employee relationship exists [check applicability u/s 192]
 If the recipient is a non-resident [check applicability u/s 195]
 If benefits or perquisites are provided to a customer who does not engage in business
or exercise of a profession
 If the benefits or perquisites not arising from business or exercise of professional the
recipient
 TDS required to be deducted u/s 194R in following cases
 Incentive in form of cash or kind such as car, TV , computers , gold chain, mobile etc.
 Sponsors a trip for the recipient and his/her relatives upon achieving certain targets.
 Provides free tickets for an event.
 Medicine Samples free to medical practitioners.
Free Sample by
Pharma Company
 Situation 1: Cipla ltd. Provided free samples to Dr. Bin who is employee of M/s Bharti
Hospitals Mumbai. In this case benefit/perquisite is provided to the doctor on account of him
being the employee of the hospital
 Solution 1: So Cipla required to deduct TDS u/s 194R of Hospital. Hospital may subsequently
treat this benefit/perquisite as perquisite given to its employee’s u/s 17 & deduct tax u/s
192 of the act thus ultimately its taxable in hands of Dr. Bin.
 Situation 2: Suppose in the above situation Dr. Bin is a consultant of Hospital instead of
an employee
 Solution 2: In this case, Cipla will deduct TDS u/s 194R of the Hospital and the Hospital
will deduct u/s 194R of Dr. Bin. Alternatively, Cipla can directly deduct TDS of Dr. Bin
u/s 194R.
Free Sample to
Social Media
Influencers
 Situation 1: Samsung India Pvt Ltd., on 10/05/2022, had given a Phone ( Valuing ₹16000) to
Mr. Dev ( Social Media Influencer) for Advertising. Further on 20/10/2022, Mr. Dev was given
another one costing ₹18000.
 Solution 1: In this case, if the products are:
a) Retained by Dev – TDS applicable u/s 194R
b) Returned to Samsung after marketing – TDS not applicable as it is not a
benefit.
Assume products retained by Dev, since the total benefit (16000+18000=
₹34000) in a PY exceeds ₹20000, TDS is required to be deducted. In this case
TDS applicable only on benefit provided on or after 1/7/2022
TDS to be deducted = ₹18000*10% = ₹1800

Travel Expenses
 UG & Associates (Kolkata), Auditor of AK Ltd.(Mumbai) goes to client’s place for audit. The
travelling expenses ( not invoiced in the client’s name) invoicing ₹32000 are paid by the client.
In this case, AK Ltd. is required to be deducted TDS u/s194R on the travelling Expenses borne i.e.;
TDS = ₹32000*10%=₹3200.
There would have been no requirement to deduct TDS if –
i. The Client had not borne the Expenditure or ,
ii. Invoice was in the name of the client and the expense was paid directly or reimbursed by
it.
Notes :
1. If out-of-pocket expenses (reimbursement) are already part of the consideration in bill and
TDS deducted u/s 194C/194J on total consideration, then TDS is not applicable u/s 194R on
such out-of-pocket expenses reimbursed by the client.
2. If any expenditure is incurred by “Pure Agent” on behalf of any “other person” and GST
credit is also availed by such “other person” then it is not treated as a benefit/perquisite to
Pure Agent.
Expenditure on
Business
Conference
The Expenditure pertaining to the Dealer/business conference would not be considered as
benefit/perquisite, in case the conference is for:

 New product launched.
 Discussions as to how the product is better than others
 Obtaining orders from dealers/customers
 Teaching Sales Techniques to dealers/customers
 Addressing queries of the dealers/customers
 Reconciliation of accounts with dealers/customers
In following cases expenditure pertaining to dealers/business conference would be treated as
perquisite/benefit:
a) Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer/business
conference.
b) Expenditure incurred for family members accompanying the person attending dealer/business
conference.
c) Expenditure on participants of dealers/business conference for days which are on account of prior
stay or overstay beyond the dates of such conference. However, a day immediately prior to actual
Value of
Benefits/Perquisites
Valuation of
benefit/prequisite
1. Provider has purchased the benefit/perquisite before providing it to the recipient –
Purchase Price.
2. Provider manufactures such items – Price that it charges to its customers for such items.
3. In any other case – Fair Market Value of benefit/perquisite.
Note : GST will not be included for the purpose of valuation of TDS purpose.
Thankyou

Application of Section 194R

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Application of Section 194R

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Application of

 Introduction of Section 194-R

The above section is applicable with effect from 01 July 2022.

 No TDS on sales discount , cash discount and rebates allowed to customers.

being the employee of the hospital

another one costing ₹18000.

 Solution 1: In this case, if the products are:

a) Retained by Dev – TDS applicable u/s 194R

b) Returned to Samsung after marketing – TDS not applicable as it is not a

Assume products retained by Dev, since the total benefit (16000+18000=

₹34000) in a PY exceeds ₹20000, TDS is required to be deducted. In this case

TDS applicable only on benefit provided on or after 1/7/2022

TDS to be deducted = ₹18000*10% = ₹1800

benefit/perquisite, in case the conference is for:

1. Provider has purchased the benefit/perquisite before providing it to the recipient –

3. In any other case – Fair Market Value of benefit/perquisite.

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