Section 194R contains provisions relating to Tax deducted at source on any benefit or perquisite, arising from business or profession provided to residents.

As per section 28(iv) of the Income Tax Act, 1961, the value of any benefit or perquisite, whether convertible into money or not, arising from business or profession is taxable as business income in the hands of the recipient of such benefit or perquisite.
However, in many cases, such recipient does not report the receipt of such benefits in their return of income, leading to furnishing of incorrect particulars of income.
In order to force such recipients to properly disclose the benefits they receive, persons providing such benefits or perquisites are required under section 194R to deduct tax at the time of providing such benefit to the resident.

Any person providing benefit or perquisite to a resident should deduct tax as per section 194R.
However, an individual or HUF providing any benefits/perquisites taxable under section 194R need not deduct any tax provided that the turnover of such individual or HUF does not exceed Rs. 1 crore or Rs. 50 Lakhs (in respect of business or profession respectively) in the financial year immediately preceding the financial year in which such benefit is provided.

Tax is to be deducted at the rate of 10% on the aggregate value of such benefit/perquisite.

The person responsible for providing such benefit or perquisite shall deduct tax before releasing the benefit or perquisite.
If the benefit or perquisite is not wholly in cash or partly in cash, the person providing such benefit or perquisite should ensure that the tax on such benefit is paid by the recipient before releasing such benefit or perquisite.

No Tax needs to be deducted if the aggregate amount of benefit or perquisite provided to the recipient does not exceed Rs. 20,000 in a financial year.

The term “benefit or perquisite” has not been separately defined for the purpose of section 194R. However, it is essential that such a benefit or perk is linked to the business or profession of the assessee.
There are different types of benefits or perquisites that are provided by businesses to their dealers, distributors, agents, channel partners like travel packages, gift cards/vouchers, products under incentive scheme like phones, vehicles etc.
Freebies/benefits received by doctors from pharma companies are also taxable under this section
The CBDT is yet to clarify the scope of the benefits or perquisites taxable under this section.

If the non-resident provides any benefit/perquisite to any resident in the nature of section 28(iv) – Provisions of section 194R is applicable
If the non-resident receives any benefit/perquisite in the nature of section 28(iv) – Provisions of section 194R is NOT applicable

It is clear that the provisions of section 194R will apply only on the benefits or perquisites arising in the course of business or profession.
Since the perquisite received by an employee does not arise as a result of carrying out any business or profession by the employee, no tax needs to be deducted under section 194R on such perquisites.

Since benefits/gift/perks provided during special occasions like festivals does not arise as a result of carrying on business or profession, no tax needs to be deducted under section 194R.

FAQ’s on TDS under Section 194R

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