File your ITR Hassle-Free and Maximise your Refunds
Trusted by 1 Million+ Users
4.8 Star User Rating
Authorized by Tax Department
Section 194R of the Income Tax Act was first introduced in the Union Budget of 2022. Gone are the days when you could claim benefits given in kind as an expense deduction. With the introduction of section 194R, you now have to deduct TDS on any such benefit before releasing it to the receiver. This has helped the government prevent the evasion of taxes and avoid the misrepresentation of income.
Section 194R of the Income Tax Act deals with the taxation on any kind of benefits and perquisites received by an individual from a business or profession. This section applies to both monetary and non-monetary benefits and perquisites. As per the update in Budget-2022, 10% TDS should be deducted by any individual who extends any benefit or perquisite worth more than INR 20,000 to a resident.
This section is applicable if any individual receives monetary or non-monetary gifts, perks, or incentives in either cash, kind, or both from a person carrying on any business or profession. The value of such perquisites or benefits should also exceed INR 20,000
The government introduced section 194R of the Income Tax Act to plug the evasion of taxes. Many companies used to give their dealers gifts, perquisites, and other benefits for promotions and claimed deduction of expenses from the business income. Also, the individuals receiving the benefit did not report this income, as it was in kind. This led to the evasion of taxes. Therefore, the government introduced section 194R, which states that any benefit, whether in cash or kind, received by a resident individual from a business or profession is liable for tax.
Here’s an example - Suppose ABC Ltd. is a car manufacturing company that decides to give cars as incentives to dealers on meeting their annual targets. The companies used to show this as a business expense and used to claim a deduction of expenses. Since the introduction of section 194R, all the benefits extended by a business or profession in the form of cash and kind are taxable. Section 194R has thus helped the government keep track of income and prevent tax evasion.
As per section 194R of Income Tax Act, 1961, the TDS should be deducted at 10%. Businesses or professions are responsible for deducting TDS @10% if the total value of the gifts or perquisites given is more than INR 20,000 during a financial year for every recipient.
Given below are the scenarios where section 194R is not applicable -
.The benefit provider shall deduct the TDS before releasing them. It is the provider’s responsibility to deduct the TDS from the amount before providing such perquisites.
Here are a few ways to deduct TDS -
As per the CBDT, the value of the perquisite is calculated on the basis of the fair market value of the benefit. However, there are certain exceptions to this -
Every benefit provider is required to file a quarterly TDS return in Form 26Q. All this can seem a little difficult to pull off, especially for someone who doesn’t have proper knowledge of tax provisions. Tax2win is the one-stop solution that provides easy access to a qualified CA and helps you with a smooth ITR filing process. Hire an eCA today!
No, such gifts or benefits received on account of a marriage or a festival will not be taxed under section 194R. Section 194R specifically applies to benefits and perks arising out of a business relationship.
Yes, if the recipient receives the benefit or perquisite in the form of a capital asset, it is still taxable under section 194A.
The deductor is required to furnish a TDS certificate to the deductee every quarter, in form 16A. The deductor can find Form 16A from the TRACES account, and the deductee can see the details in Form 26AS.
Yes, the deductor of the TDS is responsible for filing quarterly returns of the tax deducted under section 194R in Form 26Q.
No, the provision given in section 194R of the Income Tax Act doesn’t apply if the benefit is provided to a government entity not having any business or profession.
