CBDT issues additional guidelines on deduction of tax at source u/s 194R

Circular No 18 of 2022, dated 13-09-2022

The Finance Act, 2022 had inserted a new section 194R to the Income-tax Act, 1962 providing for deduction of tax at source (TDS) on benefit or perquisite in respect of business or profession.

To remove difficulties in implementing the provisions of section 194R, the Central Board of Direct Taxes (CBDT) vide Circular no. 12 of 2022, dated 16-06-2022 had issued guidelines framing 10 questions and answers to give clarity on the deduction of tax at source (TDS).

Now the CBDT has issued additional guidelines to give more clarity on FAQs released earlier by the board. The summary of additional guidelines are discussed below:

1) It has been clarified by the board that the circular is applicable only in implementing provisions of section 194R. The Circular doesn’t impact the taxability of income in hands of the recipient as the same shall be governed by provisions of the Income-tax Act.

2) Section 194R wouldn’t apply in case of one-time loan settlement with borrowers or waiver of loan granted on reaching settlement with borrowers. However, this relaxation is available only when the loan has been taken from specified lenders.

3) Amount incurred by ‘Pure Agent’ for which he is reimbursed by the recipient would not be treated as a benefit/ perquisite for the purpose of section 194R. The board has taken the reference of GST Valuation Rules 2017 to define the meaning of ‘Pure Agent’.

4) In case of out-of-pocket expenses, it has been clarified that if the out-of-pocket expense has been included as part of the professional fee and tax has been deducted under section 194J on the entire amount then no further tax deduction under section 194R is required.

5) Expenditure on participants of dealer/ business conference for days which are on account of overstay prior to the dates of conference or beyond the dates of the such conference would be considered as benefit/perquisite for the purposes of section 194R. However, a day immediately before the actual start date of the conference and a day immediately following the actual end date of the conference would not be considered as overstay.

6) If benefit/perquisite is provided in a group activity in case of a dealer conference and it is difficult to match such benefit/perquisite to each participant, the benefit/perquisite provider may at his option not claim the expense, representing such benefit/perquisite, as deductible expenditure for calculating his total income.

7) If he decides to opt so, he will not be required to deduct tax under section 194R on such benefit/perquisite and therefore he will not be treated as an assessee in default under section 201.

8) If a car has been received as a gift by the car dealer from a company, then such dealer is eligible to claim depreciation on such car if amount of benefit/perquisite has been included by the dealer as income in his income-tax return.

9) Section 194R is not applicable on benefit/perquisite provided by:

– An organization in the scope of The United Nations (Privileges and Immunity Act) 1947,
– An international organization whose income is exempt under a specific Act of Parliament (such as the Asian Development Bank Act 1966),
– An embassy, or
– A High Commission, legation, commission, consulate, and the trade representation of a foreign state.

10) Provision of Section 194R does not apply to the issuance of bonus or right shares by a company in which the public is substantially interested. However, bonus shares or right shares must have been issued to all shareholders.

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