TDS under section 194R on free sample, foreign trips, gifts to effect Doctors &

1. TDS UNDER SECTION 194R ON FREE SAMPLE, FOREIGN TRIPS, GIFTS TO EFFECT DOCTORS & OTHERS AUTHOR :UMESHSHARMA https://taxguru.in/income-tax/tds-section-194r-free-sample-foreign-trips-gifts.html Tax will now be deducted under section 194R on free sample, foreign trips, gifts. Doctors and others will be affected. Arjuna (Fictional Character):Krishna, a new section 194R had been introduced in this budget. Recently the Income tax Department has issued a circular regarding the same. What are the details in the circular? Krishna (Fictional Character): Arjuna, Section 194R requires a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 10% w.e.f 1.07.2022 of the value or aggregate of value of such benefit or perquisite before providing such benefit or perquisite in cash or in kind. The recent Income tax Department circular contains the cases where it has clarified the applicability of TDS under Section 194R. Arjuna (Fictional Character): Krishna, what are the cases mentioned in the circular where payments or benefits given to a resident will be considered as “Benefits or Perquisites” under section 194R? Krishna (Fictional Character): Arjuna, TDS under 194R would be applicable in the following cases: 1. Any asset given as benefit or perquisite that may be capital asset in general sense of the term like car, land etc. 2. Free samples of products are provided. 3. Incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc. 4. Sponsor a trip or provide free tickets of event for the recipient and his/her relatives upon achieving certain targets. Arjuna (Fictional Character): Krishna, what if the payments or benefits are provided are used by owner/director/employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or exercising a profession? Krishna (Fictional Character): Arjuna, Let us understand it with a help of this example- Let us assume that an entity A Ltd. is providing benefits and perquisites to employees, directors, consultants and relatives of an entity B Ltd. Here, A Ltd. will deduct tax under 194R in the name of B Ltd. as the person who are using the benefits are by virtue of their relation with B Ltd.

2. Further, B Ltd. can deduct tax on benefits received by its employees or directors under section 192. In case where the benefits are received by B Ltd.’s consultants, they can again deduct tax under section 194R but to remove the difficulty department has provided an alternative in which the original benefit provider may directly deduct tax under section 194R in the case of a consultant as a recipient. But now when we talk about the benefits received by the relative the department is silent and has only mentioned that benefit provider shall deduct tax in the name of the recipient entity. Arjuna (Fictional Character): Krishna, what are the cases where we do not need to deduct tax under section 194R? Krishna (Fictional Character): Arjuna, the cases where tax deduction is not required are as follows: 1. The deduction is not required to be made, if the value or aggregate of value of the benefit or perquisite provided or likely to be provided to the resident during the financial year does not exceed Rs 20,000/- 2. The responsibility of tax deduction also does not apply to a person, being an Individual/Hindu undivided family (HUF) deductor, whose total sales / gross receipts / gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, during the financial year immediately preceding the financial year in which such benefit or perquisite is provided by him. 3. This section shall not apply if the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession. 4. In case of the schemes. For example, where a seller offers 2 items free with purchase of 10 items. It is a case of benefit but department has removed such cases from the levy of tax to remove the difficulty in applying this section. 5. In case the benefit or perquisite is taxable under Salaries. Arjuna (Fictional Character): Krishna, what one should learn from this? Krishna (Fictional Character): Arjuna, we can understand one thing from the introduction of this section that government wants to make its provisions on income tax more stringent for persons, who till now used to earn benefits without paying taxes. Generally, this practice was followed in medical industry so the Income Tax Department have specifically mentioned examples quoting medical industry practices in the circular which makes it clear that the department will keep a close eye on the medical industry practices. Hence it is now important for a tax professional to look into the details of the transactions and report the applicability of TDS under 194R.