Withholding tax on benefits or perquisites under proposed section 194R

Yogesh Shah, Aparna Parelkar & Jolly Bajaj – [2022] 135 taxmann.com 179 (Article)

The scheme of Tax Deduction at Source (TDS) was introduced with an aim to collect tax at the first instance. Of late, TDS has become a major source of direct tax revenue and an instrument in the hands of the Government to prevent tax evasion. The recently introduced provisions for deduction of tax at source on purchase of goods and e-commerce transactions are a testimony to the intention of Government to broaden the tax net.
Since considerable amount of time, various Fast moving consumer goods (FMCG) companies spend huge proportion of their marketing cost for providing benefits or perquisites in form of foreign trips, vehicles, expensive gifts, prizes, etc. to their distributors, dealers, and brand ambassadors. The said expenditure incurred by the companies is claimed as deduction as business expenditure in their tax returns. However, since the said benefits or perquisites are in kind, by and large the same were not included by the recipients in their income.

To plug this tax leakage and deepen the tax base, Finance Bill 2022 proposes to insert a new section 194R in the Act to provide for deduction of tax on benefit or perquisite arising from carrying out of business or profession. The detailed provisions in this respect, are cited in this article.

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