Section 194R – Deduction of tax on benefit or perquisite in respect of business or profession
– CA Puja Agarwal
In its further endeavour to curb the tax evasion, the Finance Ministry has introduced a new TDS provision via Finance Act, 2022, which pertains to the deduction of tax on benefits and perquisites in respect of business and profession.
According to the memorandum, the explanation of the Finance Bill, the below-mentioned aspects has been provided regarding Section 194R-
According to clause (iv) of section 28 of the Act, the value of the benefit or perquisite, whether it is convertible into monetary terms or not, accruing from business or carrying on from any profession has to be charged as business income on the part of the receiver of said benefit or perquisite.
In most cases, the receiver of the benefit or prerequisite does not report the benefit that it has received in its income tax return, which can lead to furnishing incorrect and false income particulars.
Thus, the provided provision for tax deducted at source is being added and put in place to detect the benefits or perquisites which may largely remain unaccounted for thus, it is not taxed despite being there for specific taxation provisions as a result of its nature of accountability.
Business, companies, or entities often extend multiply type of monetary and non-monetary benefits/ perquisites to their distributors, dealers, agents, channel partners to incentivise them in the name of Business Promotion Strategy and claim it as business expense while the person receiving such benefits may not get taxed for the same. The main purpose of this section is to track these transactions and to make sure that such benefits shall be taxable in the hands of such agents and dealers etc. This section, 194R has definitely opens a pandora’s box for the recipient, if such benefits/perquisites are not recorded in the books of account resulting in non-disclosure of income along with adverse tax implications.