Income TaxTDS Gaps in Clarifications Provided for Section 194R

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The Tax Publishers Income Tax--TDS Gaps in Clarifications Provided for Section 194R Srivatsan Ranganathan Section 194R introduced by the Finance Act, 2022 has raised many eyebrows especially in the manner how it is likely to get implemented. CBDT recently came out with a detailed circular on this topical section which as usual clarified some gaps but leaving some other gaps open. The author has dealt the said circular and the gaps on the said section in this write up. 1. First take Finance Act, 2022 had inserted Section 194-R. Deduction of tax on benefit or perquisite in respect of business or profession w.e.f. 1-7-2022. Readers will recollect that the section has been brought in to fasten TDS deduction on perquisite or benefit arising out of business or exercise of profession provided by a resident to another resident with the TDS rate being 10% if such benefit/perk exceeds Rs. 20,000 in a financial year. Recent CBDT Circular No. 12/2022, dated 16-6-2022 no doubt clarifies certain cobwebs on the implementation of the said Section 194R, nonetheless it does not address certain other aspects some of which are dealt here in. 2. Legislative gaps Section 28(iv) confirms that 'the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession' shall be Income from business or profession as the case may be without clarifying the meaning of perquisite or benefit for the purpose of the taxing section It will also be recollected that no matter the existence of this section without a robust TDS/reporting mechanism the section was bereft any teeth to identify/tax net such incomes under Section 28(iv) in the first place. The issue was widely misused in the Pharmaceutical sector by Pharma companies providing freebies and sponsorships and other extraneous perks/benefits to doctors and physicians. Section 17(2) under salaries, defines perquisite inclusively without travelling beyond the domain of perquisite if not provided by the employer. One will have to travel into the dictionary meaning of the word perquisite and benefit to apply Section 194R in the first place which might not help the revenue most times. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--TDS

Gaps in Clarifications Provided for Section 194R

Srivatsan Ranganathan

Section 194R introduced by the Finance Act, 2022 has raised many eyebrows especially in the manner how it is likely to get implemented. CBDT recently came out with a detailed circular on this topical section which as usual clarified some gaps but leaving some other gaps open. The author has dealt the said circular and the gaps on the said section in this write up.

1. First take

Finance Act, 2022 had inserted Section 194-R. Deduction of tax on benefit or perquisite in respect of business or profession w.e.f. 1-7-2022. Readers will recollect that the section has been brought in to fasten TDS deduction on perquisite or benefit arising out of business or exercise of profession provided by a resident to another resident with the TDS rate being 10% if such benefit/perk exceeds Rs. 20,000 in a financial year.

Recent CBDT Circular No. 12/2022, dated 16-6-2022 no doubt clarifies certain cobwebs on the implementation of the said Section 194R, nonetheless it does not address certain other aspects some of which are dealt here in.

2. Legislative gaps

Section 28(iv) confirms that 'the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession' shall be Income from business or profession as the case may be without clarifying the meaning of perquisite or benefit for the purpose of the taxing section It will also be recollected that no matter the existence of this section without a robust TDS/reporting mechanism the section was bereft any teeth to identify/tax net such incomes under Section 28(iv) in the first place. The issue was widely misused in the Pharmaceutical sector by Pharma companies providing freebies and sponsorships and other extraneous perks/benefits to doctors and physicians.

Section 17(2) under salaries, defines perquisite inclusively without travelling beyond the domain of perquisite if not provided by the employer. One will have to travel into the dictionary meaning of the word perquisite and benefit to apply Section 194R in the first place which might not help the revenue most times.