CBDT Issues Fresh Policies of New Section 194R to Reduce Problems

The Central Board of Direct Taxes (CBDT) issued a circular No. 18 of 2022 dated 13th September 2022, to eliminate issues in Section 194R of the Income Tax Act, 1956 which mandated an individual providing any benefit to another person to deduct TDS at 10% of the value of the benefit.

What is Section 194R TDS?

The Finance Bill 2022 proposed a new TDS section 194R. This Section allows tax to be deducted at source on perks or benefits given to the residents. If a resident receives benefits or perks worth not exceeding Rs. 20,000 in total in the financial year, no tax deduction is applicable. The provisions of section 194R apply to all assesses except individuals or Hindu Undivided Family (HUF) whose revenue doesn’t exceed Rs. 1 crore in the case of a business and Rs.50 lakhs in the case of a professional.

The CBDT via Circular No. 18 of 2022, aimed at removing the difficulties in the implementation of TDS on perks or benefits under Section 194R. This circular is the continuation of earlier Circular No. 12, issued on June 16, 2022, offering guidelines on the coverage and scope of Section 194R. The department makes it clear explicitly that the circular is only to remove difficulties in the implementation of provisions contained in Section 194R and doesn’t impact the taxability of income in the hands of the recipient in any manner, which the relevant provisions of the Income Tax Act would govern.

Purpose of introducing section 194R

The Income tax department observed that several companies claimed charges for business promotions by giving gifts, incentives and perks to their dealers. For this reason, the department decided to introduce Section 194R.

Key Clarifications in Circular No. 18 of 2022

  • Depreciation on any capital asset gifted as a benefit or perk – Where a gift in form of a capital asset received and tax has been withheld under Section 194R, the recipient will be allowed to claim depreciation under Section 32.
  • Liability on High Commissions or Embassy – As per the circular, certain high commissions and embassies aren’t required to deduct TDS under Section 194R for the perquisite or benefit offered by such organisations.
  • Liability on the issuance of bonus or right shares – TDS under Section 194R isn’t required to be deducted on the issue of bonus as well as right shares issued by a listed company.
  • One-time loan waiver or settlement of loan – As per the circular, Section 194R won’t be applicable on one-time loan waivers or settlements of loans granted to borrowers by specified financial institutions and banks.
  • Reimbursement of expenses incurred by Pure Agents – Any expense incurred by pure agents which are reimbursed by the service recipient, won’t be considered a perquisite or benefit for the purposes of this Section, and hence a pure agent won’t be required to deduct TDS under section 194R.

TDS / TCS Rate Chart FY: 2023-24 (AY: 2024-25)

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