Introduction – In Finance Act 2022, two new TDS sections have been inserted in Income Tax Act, which are effective from 01-07-2022.
Applicability of Section 194R
It is applicable on any person whether resident or non-resident responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from a business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, deduct TDS in respect of such benefit or perquisite under section 194R.
Rate and amount of Deduction
Any person resident or non-resident responsible for providing any benefit or perquisite to a resident, shall deduct TDS at a rate of 10% of the value or aggregate of the value of such benefit or perquisite provided or likely to be provided to such resident.
TDS under section 194R is to be deducted on fair market value of the benefit or perquisite and if the benefit or perquisite has been purchased by the deductor then the purchase price or actual cost shall be the value on which TDS will be deducted.
In case such item is manufactured by the deductor himself then the price charged by the deductor to its customer shall be the value on which TDS will be deducted.
Time of deducting TDS
TDS under this section shall be deducted at the time of providing benefit or perquisite to the deductee by the deductor.
In case where the benefit or perquisite is wholly in kind or partly in cash and partly in kind but such part in cash is not enough to deduct TDS in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that TDS required to be deducted has been paid in respect of the benefit or perquisite.
Exception to this section
Provisions of this section shall not apply where value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed Rs. 20 thousand.
Provisions of this section shall not apply where being an individual or Hindu undivided family, whose total sales, gross receipts or turnover does not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession, during the previous year of the financial year in which such benefit or perquisite, as the case may be, is provided by such person.
Example
Mr. Darshan provided following benefits and perquisite to Mr. Raju. Define TDS deductibility in each of the following cases:
In case where Mr. Darshan transferred ownership of his car to Mr. Raju, who is employee of Mr. Darshan.
In case where target base payment is done by Mr. Darshan to Mr. Raju on achieving the target provided to him.
In case where Dr. Raju gets free samples of medicine provided by Mr. Darshan.
Solution- Deductibility in following cases are as follows:
Transfer of capital assets is covered under section 194R, therefore TDS will be deducted.
Section 194 provided that TDS will be deducted on incentive or gift on target completion.
TDS will be deducted on fair market value of such item.
Applicability of Section 194S
Under this section any person responsible for paying to any resident any sum as it’s consideration for transfer of a virtual digital asset shall deduct TDS. In case where the consideration for transfer of virtual digital asset is wholly in kind or in exchange of another virtual digital asset, where there is no part in cash or partly in cash and partly in kind but the part in cash paid is not enough to pay TDS liability of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that TDS required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset. If TDS under section 194O is applicable on a transaction along with section 194S then provisions of section 194S will be applicable.
Time of deducting TDS
Earlier of the following shall be the time of deducting TDS under this section: –
At the time of credit of such sum to the account of the resident even if such sum is credited to the suspense account or any other account by different name in the books of the person liable to pay such income
at the time of payment of such some by any mode
Rate of Deducting TDS
TDS under this section on consideration for transfer of virtual digital asset shall be deducted at 1% rate of such sum.
Exception to this section
Following are the exceptions on which TDS under section 194S is not applicable: –
TDS shall not be deducted under this section if consideration is payable by a specified person and the value or aggregate of such value does not exceed Rs. 50 thousand during the financial year.
TDS shall not be deducted under this section if consideration is payable by any person other than specified person and the value or aggregate of value of such consideration does not exceed Rs. 10 thousand during the financial year.
For this section “specified person” means
a person being an individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover, from the business carried on by him does not exceed Rs. 1 crore and in case of profession exercised by him does not exceed Rs. 50 lakhs during the financial year immediately preceding the financial year in which such virtual digital asset is transferred.
being an individual or Hindu Undivided Family, not having any income under the head “Profits and gains of business or profession”.
