Section 194R of the Income-Tax Act, a new provision, requires that anyone providing a resident with benefits or perks that exceed ₹20,000 annually must deduct tax at source at a rate of 10%. Read this blog to know more.
Tax Deducted at Source, also known as TDS, is a technique of tax deduction at the source of income generation established for speedy and effective tax collection. By this method, the payer deducts tax from income at the source and remits it to the government on behalf of the payee.
To stop the tax revenue leakage, the budget for 2022–2023 included a Tax Deducted at Source (TDS) provision on such income. The IT Act now has a new section, 194R, added as a result of the budget. This section compels any person giving a resident any benefit or perk that exceeds ₹20,000 per year that arises from their company or profession to deduct tax at source at the rate of 10%.
Salary, interest, commission, brokerage, professional fees, royalties, and contract payments are only a few of the charges subject to laws of the tax at source.
Accurate TDS calculation formula and results with our TDS calculator. Learn how to calculate TDS on salary.
New TDS Guidelines
The Income-tax Act of 1961 was amended by Finance Act 2022 and introduced two new sections: Sections 194R and 194S.
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Section 194R
According to the provision, anybody in charge of giving a resident any benefits or perks—whether they can convert them into cash or not—related to the conduct of their business or practice is required to withhold tax at a rate of 10% before giving them to the resident.
The section won’t be effective if an individual or family does not have a turnover or total sales beyond ₹1 crore in case it is a business. Also, it won’t be applicable if it does not exceed ₹50 lakhs in the case of a profession or a business.
The section does not also apply in the case where the benefit or requisite provided to the resident does not exceed ₹20,000.
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Section 194S
This Section talks about the payment on transfer of virtual digital asset. According to it, anyone in charge of giving a resident any money as payment for the transfer of a virtual digital asset must deduct tax at a rate of 1% at the time the money is credited to the resident’s account or paid in any other way, whichever comes first.
Aspects of the New TDS Rule
There are some simple yet significant aspects of the recently introduced TDS rules. You can get a clear idea about these to understand the fundamentals of the rule. The five critical aspects concerning the new TDS rule, which came into effect as of 01 July, 2022 are:
- Any individual providing a resident with benefits or perks that exceed ₹20,000 annually is required to deduct tax at source at a rate of 10% under a new provision in the Income -Tax Act known as Section 194R. The clause will be used, among others, to limit advantages derived from commercial or sales promotion activities and will be applied to the influencers on social media and physicians
- The provision came into effect after getting announced in the budget of 2022. The Finance Act of 2022 added this measure to enlarge the tax base. They did this to ensure that those who benefited from such sales promotion efforts acknowledged their benefit on their tax returns and paid tax based on the value of the benefit or goods
- If the influencers on social media platforms keep the gifts or things that companies provide as part of their marketing campaigns, they will be obliged for TDS. The TDS won’t apply if the product is returned to the company. Any merchant offering rewards, rather than a discount or rebate, in cash or things such as a car, TV, computer, mobile phone, gold, sponsored trip, etc., is subject to this clause
- Customer rebates, sales discounts, and cash discounts are not tax deductions under section 194R of the Income Tax Act. Similarly, the clause shall not apply if the total value of the perquisite benefits supplied in a year does not reach ₹20,000. In addition, section 194R will not apply if the benefit or perquisite is granted to a government organisation that is not engaged in business or profession, such as a government hospital
- Benefits or prerequisites traded between people in business or professionals are covered by Section 194R and not in the case of employees and employers. It implies that the section’s provision will not apply if an employer offers perks to one of its employees. In this case, Section 192 will take effect.
TDS for Doctors
Regarding doctors, CBDT clarified that Section 194R will be applicable to the delivery of free medicine samples to the hospital, where doctors obtained free samples of medications while working for that hospital. Also, the hospital, as an employer, can classify these medicine samples as taxable benefits for the employees and staff members, and also deduct tax as per Section 192. The hospital must be considered when determining the threshold of ₹20,000 in these situations.
It is preferably to apply TDS to the hospital first for those doctors working for a hospital and obtaining free samples; this would then mandate the tax deductions for all consultant doctors under Section 194R.
Conclusion
With the introduction of new laws and amendments in the Income Tax Act, it might be normal to be in a state of confusion. The article above gives a concise idea of these amendments. If you need any assistance regarding the TDS guidelines or new rules, you have landed on the right platform. You can rely on Vakilsearch to know more about the new TDS rules in India.
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