TDS on benefits: Section 194R of the I-T Act has confused people

The government, in the Finance Act, 2022, introduced a new section 194R to the Income Tax Act, 1961. It makes it mandatory for resident Indians to pay a 10 per cent tax on benefits received by them.

Section 194R makes it mandatory to deduct 10 per cent tax at source on the value of any benefit or perquisite received by a resident Indian. This section was introduced by the government to widen the tax base and reduce tax evasion in the country. Experts, however, have flagged several concerns.
 

Are there any exceptions to the act? The section will not apply if the value of "benefit" or “perquisite” provided is less than Rs 20,000. It is also not applicable to an Individual or HUF with turnover not exceeding Rs 1 crores for business or Rs 50 lakhs for a professional in the immediately preceding year in which the benefit was provided.

Why is it perplexing experts?

The threshold prescribed under section 194R does not sync with the threshold prescribed under section 56. Under section 56, if the receipt of benefits by an individual or a Hindu Undivided Family (HUF) exceeds Rs 50,000 in a year, they are liable to pay a tax on it. However, under section 194R, the limit is Rs 20,000. According to experts, this would lead to tax outflow which is actually exempt in the hands of the recipient.

The term 'benefit' or 'perquisite' is not defined in the Act. The government had earlier stated that the receipt may be in cash or kind, but no clear definition was provided. This would lead to additional administrative challenges.

It will also be difficult to calculate the exact valuation of “benefits in kind” and it would make compliances more cumbersome. The act also brings samples received by doctors and travelling and other benefits received by influencers under its ambit.

What can a taxpayer do if both sections 194R and 56 apply to the situation? Amrita Bhatnagar, associate director, at RBSA Advisors says that due to a lack of clear guidelines, they must pay the higher tax and claim the refund later through the income tax return (ITR). However, the government has not yet issued any clarification on these complications.