Section 194R – TDS on Benefits or Perquisites

Section 194R of the Income Tax Act mandates Tax Deducted at Source (TDS) on any benefit or perquisite, whether convertible into money or not, provided to a resident individual arising from their business or the exercise of a profession. This section was introduced to bring such benefits, often given as incentives or gifts, into the tax net, promoting greater transparency and compliance.

Any person (including individuals and HUFs whose total sales, gross receipts, or turnover from business or profession exceeds ₹1 crore or ₹50 lakhs respectively in the immediately preceding financial year) who is responsible for providing any such benefit or perquisite to a resident is required to deduct TDS. This means the provider of the benefit is the deductor.

This section covers a wide range of benefits or perquisites, which can be in cash, in kind, or partly in cash and partly in kind. These benefits must arise from the business or profession of the recipient. Examples include:

• Free samples (e.g., medicines to doctors, products to influencers).
• Incentives (cash or kind like cars, mobile phones, gold coins, electronic items, etc.) given to dealers, distributors, agents, channel partners.
• Sponsorship of a trip (domestic or foreign) for the recipient or their relatives.
• Free tickets for an event.
• Reimbursement of expenses where the invoice is not in the name of the recipient, but the payment is made by the provider.
• Any asset (even capital assets like cars or land) given as a benefit.

It's important to note that this section applies even if the benefit is used by the owner, director, or employee of the recipient entity or their relatives, who may not be carrying on business or exercising a profession in their individual capacity.

TDS under Section 194R is applicable if the **aggregate value of benefits or perquisites** provided to a single resident recipient during a financial year **exceeds ₹20,000**. If the total value is ₹20,000 or less in a financial year, no TDS is required under this section.

The TDS rate under Section 194R is **10%** of the value or aggregate value of the benefit or perquisite provided. If the recipient does not furnish their Permanent Account Number (PAN), the TDS rate will be 20% as per Section 206AA.

TDS must be deducted **before providing** the benefit or perquisite to the resident recipient. This applies whether the benefit is wholly in cash, wholly in kind, or partly in cash and partly in kind.

The valuation of the benefit or perquisite is to be done as follows:

• If the provider has **purchased** the benefit/perquisite, the value will be the **purchase price** (the amount paid by the provider).
• If the provider **manufactures** such items, the value will be the **price charged to its customers** for such items.
• In other cases, the **Fair Market Value (FMV)** can be considered.

**GST is not to be included** for the purpose of valuation of the benefit or perquisite for TDS under this section.

Yes, any person (other than an individual or HUF specified for 194R) responsible for deducting tax under Section 194R **must obtain a Tax Deduction and Collection Account Number (TAN)**. They are also required to file quarterly TDS returns and issue TDS certificates.

If the benefit or perquisite is wholly in kind, and the recipient has no cash to pay the tax, the person providing the benefit must **ensure that the tax required to be deducted has been paid** in respect of the benefit or perquisite before providing it. This can be done in a few ways:

• The provider may ask the recipient to pay the tax in cash.
• The provider may gross up the value of the benefit and pay the TDS from their own pocket (this grossed-up TDS amount will also be treated as a benefit).

Section 194R does not apply in the following cases:

• **Employee benefits:** Benefits provided by an employer to an employee are covered under Section 192 (TDS on salary).
• **Non-resident recipients:** Benefits provided to non-residents are governed by Section 195.
• **No business relationship:** If there is no business or professional relationship between the provider and the recipient.
• **Value below threshold:** If the aggregate value of benefits/perquisites is ₹20,000 or less in a financial year.
• **Small Individual/HUF providers:** Individuals and HUFs whose total sales, gross receipts, or turnover from business or profession in the immediately preceding financial year does not exceed ₹1 crore (for business) or ₹50 lakhs (for profession).
• **Sales discounts, cash discounts, and rebates:** These are generally considered a reduction in the sale price and are explicitly excluded from 194R.
• **Benefits not arising from business/profession:** For example, personal gifts at festivals or marriage ceremonies.

The deductor (provider of benefit) must:

• Deduct TDS at 10% (or 20% if PAN not provided) on the value of the benefit exceeding ₹20,000 per financial year per recipient.
• Deposit the TDS using Challan No. ITNS 281 by the 7th of the succeeding month (or 30th April for March deductions).
• File quarterly TDS statements in **Form 26Q**.
• Issue a TDS certificate in **Form 16A** to the recipient.

Yes, the recipient of the benefit or perquisite can claim credit for the TDS deducted under Section 194R when filing their Income Tax Return. The TDS credit will be reflected in their Form 26AS, which they can access on the Income Tax Department's portal.

Failure to deduct or deposit TDS under Section 194R can lead to:

• **Interest** for delayed deduction (1% per month or part thereof) and delayed deposit (1.5% per month or part thereof).
• **Penalty** under Section 271C for failure to deduct tax, which can be equal to the amount of tax not deducted.
• **Disallowance of expenditure** in the hands of the deductor under Section 40(a)(ia) if the payments relate to business expenditure and TDS was not deducted or deposited.

The CBDT has clarified this. If the conference is primarily to educate dealers/channel partners about the company's products, policies, etc., and their participation is for training purposes, then the expenditure on their travel, stay, etc., may not be treated as a benefit/perquisite under Section 194R. However, if the conference is primarily in the nature of an incentive (e.g., for achieving targets), or includes leisure activities where the primary purpose is not education, then the expenditure could be treated as a benefit/perquisite and attract TDS under 194R.