Section 194R for TDS on Business Promotion Expenses

Section 194R is recently introduced in the finance bill 2022 for applicability of deduction on TDS on business promotion expenses paid by the business entities. This new TDS section will be applicable from 1st July 2022. The main object of bringing this section is to include the income of benefit or perquisite received during the normal course of business which is generally not reported in the ITR.

Decoding the Section 194R:

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 the value of such benefit or perquisite.

As per the above TDS is applicable when:

• Resident provides any benefit or perquisite to another resident.
• Benefit or perquisite is arising from business or profession.
• TDS @10% to be deducted on the aggregate value of such benefit or perquisite.
• TDS to be deducted before providing 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 the 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 has been paid in respect of the benefit or perquisite.

As per the above TDS is to be deducted even if the cash component of such benefit is short for the deduction of total TDS.

Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of the value of the benefit or perquisite provided or likely to be provided to such residents during the financial year does not exceed twenty thousand rupees:

As per the above TDS is not required to be deducted if the value of such benefit to the resident during the financial year does not exceed ₹ 20,000.

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 the 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.

As per the above TDS is not required to be deducted under this section if turnover during the previous year does not exceed ₹ 1crore/50Lacs in case of business/profession.

What is the ‘benefit or Perquisites’ to which this section is applicable?

There are many types of benefits and perquisites that are provided to the distributors, dealers, agents, business partners, etc. by the businesses with an intention to motivate them to bring more business to the company.

Some of the common benefits provided are:

• Tours and travel packages
• Gift and shopping vouchers
• Gifting vehicles, phones, electric equipment etc. on reaching certain milestones
• Free accommodation and meals
• Free products to influencer for promotion

Benefits and perquisites are not clearly defined in the section, the only thing that is defined is that it should be arising in the course of business or profession.

Impact on the person whose TDS is deducted under this section?

If TDS is deducted under this section, the taxpayer will be required to report the income from benefit and perquisite in the income tax return in accordance with section 28(iv) of the income tax act, 1961 which states that income shall be chargeable to income-tax under the head "Profits and gains of business or profession” if the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession to the assessee.