Tax Talk – TDS on perks: Further clarity needed despite CBDT circular | The Financial Express

Tax Talk – TDS on perks: Further clarity needed despite CBDT circular

Several practical challenges in applying Section 194R remain

Tax Talk – TDS on perks: Further clarity needed despite CBDT circular
With the objective to identify and tax such benefits, the Finance Bill 2022 introduced Section 194R where the benefit provider (the hotel in our example) is required to deduct taxes and report the value of the benefit provided to the benefit recipient.

By Neeraj Agarwala

The concept of perquisite is not new, especially for the salaried class. However, the meaning of the term ‘perquisite’ is being re-examined in light of Section 194R of the Income Tax Act, 1961 (Act), which came into effect from July 1, 2022.

The new section mandates a person responsible for providing any benefit or perquisite to a resident to deduct tax at source at 10% of the aggregate value of such benefit. However, no deduction is required if the aggregate value of the benefit does not exceed Rs 20,000.

Tax on perquisite
For instance, a hospitality company invites a social influencer to stay at their properties across India and provides the influencer free stay, meals and travel in exchange for blog videos. The value of the stay, meals and travel provided by the hotel to the influencer may be considered as ‘perquisite or benefit’ in the hands of the influencer.

Even before Section 194R, the benefit receiver was required to report the value of such benefits received as part of her taxable income. However, more often than not, such income went unreported and undetected. With the objective to identify and tax such benefits, the Finance Bill 2022 introduced Section 194R where the benefit provider (the hotel in our example) is required to deduct taxes and report the value of the benefit provided to the benefit recipient.

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Now where the benefit receiver did not receive any monetary payments, how would the benefit provider recover the taxes deducted /paid on behalf of the former?

Applicability of Section 194R
In an attempt to solve this, CBDT issued a couple of circulars on the applicability of Section 194R. Thus as per the circular, in our example, the benefit provider has two options. First, he can request the social influencer to pay 10% of the value of the benefit as advance tax and provide him with a declaration along with a copy of the advance tax payment challan. In this case, no further tax will be required to be deducted under Section 194R.

Alternatively, the benefit provider may discharge the tax amount from his own pocket. In this case, the tax paid will also become a ‘perquisite or benefit’ and therefore the taxes now required to be deducted would need to be calculated after adding up the value of the perquisite with the tax on the perquisite value. This will increase the taxable income in the hands of the benefit recipient.

In its attempt to widen and deepen the tax base, CBDT has issued clarifications with illustrative examples to enable seamless application of Section 194R. However, even the tax department acknowledges that there can be many practical challenges in its application. A benefit recipient now has to choose between a temporary cash crunch or increased taxable income.

The writer is partner, Nangia Andersen India. Inputs from Neetu Brahma

FRINGE BENEFITS
A benefit recipient now has to choose between a temporary cash crunch or increased taxable income
Where the beneficiary didn’t get any monetary payments, how would the benefit provider recover the taxes paid/ deducted by it

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First published on: 09-12-2022 at 00:45 IST