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194R TDS: Applicability and Primary Considerations

In the light of section 194R, a new Section for TDS was introduced in the Union Budget 2022. TDS under Section 194R relates to the deduction of tax on benefits or perquisites in respect of business and profession.

Understanding the applicability of 194R TDS for Monetary and Non-Monetary Benefits

In the domain of taxation, there exists a provision that pertains to the receipt of gifts, perks, incentives, and various other monetary or non-monetary advantages by resident individuals from a business or profession. If the cumulative value of such benefits, expressed in monetary terms, surpasses INR 20,000 during the financial year for a single beneficiary, then this particular section comes into effect. It encompasses a wide range of scenarios where these benefits are received in cash, kind, or a combination thereof, ensuring their inclusion in tax considerations.

Understanding the liability for TDS deduction under Section 194R

One of the tax regulations states a provision known as Section 194R which outlines the responsibility for deducting Tax Deducted at Source (TDS). This provision applies to businesses or professions that provide benefits or perquisites to agents, channel partners, dealers, distributors, or any other individuals, surpassing a specified amount during the financial year for a single recipient. However, it is important to note that individuals or Hindu Undivided Families (HUFs) are not obligated to deduct TDS if their total sales do not exceed INR 1 crore for businesses or INR 50 lakh for professions in the immediately preceding financial year. This provision aims to ensure proper TDS compliance and accountability within the specified parameters.

Primary significance of Section 194R in preventing tax evasion

Section 194R aims to tackle the issue of tax evasion. In the past, businesses would provide various perks, benefits, and non-monetary advantages to their dealers, partners, and other individuals. However, these businesses would often claim such expenses as legitimate business costs while the recipients of these benefits would not disclose them as part of their income. To curb this practice and ensure fair taxation, Section 194R was introduced. This section holds significance in fostering transparency and accountability by ensuring that such benefits are appropriately accounted for and taxed. Its implementation serves as a deterrent against tax evasion practices, promoting a fair and equitable tax system.

A simplified and thorough guide to TDS deduction on benefits or perquisites

With regard to deducting TDS on benefits or perquisites, the responsibility lies with the entity providing these benefits to ensure that the necessary tax is deducted and paid before releasing them to the recipient. To fulfill this obligation, the payer has several options to discharge their TDS liability.

One approach is for the payer to either gross up the net amount by adding the applicable tax or to directly pay the tax from their own funds. Alternatively, if the payee provides cash to the payer specifically for meeting the TDS liability, the payer can use those funds to make the required tax deposit. Another option is to deduct the TDS from any credit balance the payee may have, and subsequently pay the net amount after deducting the TDS.

By following these procedures, the deductor can fulfill their TDS obligations while ensuring that the benefits or perquisites are appropriately accounted for in terms of tax liabilities. This systematic approach promotes compliance and transparency in the deduction of TDS on benefits or perquisites.

Simplifying TDS certificates

As per tax regulations, it is the responsibility of the deductor to issue a TDS certificate to the deductee on a quarterly basis. This certificate, known as Form 16A, serves as proof of the tax deducted at the source. Both the deductor and deductee have access to this certificate for reference and verification.

The deductor can conveniently download Form 16A from their Traces Account, ensuring an efficient and streamlined process. On the other hand, the deductee can easily view the same certificate in their 26AS, which is an annual consolidated statement of their tax-related transactions.

Streamlining TDS returns

As per the provisions of the Income Tax Act, the deductor responsible for deducting tax under Section 194R is required to file quarterly returns in Form 26Q. This process of filing TDS returns ensures compliance with tax regulations and facilitates the effective monitoring of tax deductions.

The introduction of withholding provisions under Section 194R serves a vital purpose: to capture income derived from non-monetary perquisites and expand the scope of taxable income. These perquisites often went unreported at the recipient's end, leading to a gap in the taxation process. By implementing the withholding provisions, the tax authorities aim to address this issue and ensure a wider tax net.

The filing of TDS returns in Form 26Q allows for accurate reporting and documentation of tax deductions made under Section 194R.

Understanding Exemptions under Section 194R

To provide clarity and ensure fairness, Section 194R of the Income Tax Act outlines certain exemptions related to benefits or perquisites. These exemptions serve as exceptions to the general rule of tax deduction. Let's explore the key exemptions under Section 194R:

Non-Business or Non-Professional Connection: If a benefit or perquisite is unrelated to the conduct of business or profession, it may be exempt from a tax deduction.

Low-Value Benefits or Perquisites: When the value or aggregate value of a benefit or perquisite is below INR 20,000 in a Financial Year, it may be exempt from a tax deduction. This exemption recognizes that smaller benefits or perquisites may not warrant tax implications.

Deductor's Gross Receipts or Sales Turnover: In the case of individual or Hindu Undivided Family (HUF) deductors, if their gross receipts or total sales turnover falls below INR 1 Crore (for business) or INR 50 Lakhs (for the profession), they may be exempt from a tax deduction.


Q) Does section 194R apply to employees?

Section 194R does not apply to benefits or perquisites given to employees if TDS has already been deducted under section 192 of the Income Tax Act.

Q) Is it necessary for the advantage to be in the form of property for section 194R of the act to apply?

The advantage can be in the form of cash, property, or a combination of both.

Q) Is section 194R applicable to companies?

Yes, the TDS provisions outlined in section 194R are applicable to companies if they provide benefits or perquisites to a resident that exceed the prescribed limit.

Q) What does TDS section 194R entail?

TDS section 194R requires the person responsible for making payments of benefits or perquisites arising from business or profession to deduct tax at source.

Q) What is the significance of section 194R in income tax?

Section 194R is a TDS provision that mandates a 10% tax deduction by the person making payments of benefits or perquisites to a resident.

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