SECTION 194R OF INCOME TAX: PURPOSE & APPLICABILITY

SECTION 194R OF INCOME TAX: PURPOSE & APPLICABILITY

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 194R of Income Tax Act?

Section 194R of Income Tax Act, 1961 mandates that TDS to be deducted when a business gives its distributors or channel partners any such perquisite or incentives whether in cash or in kind or partly in cash and partly in kind.

3. When is TDS to be deducted under Section 194R?

TDS is required to be deducted: -

• At the time of payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

4. Who is required to deducts TDS under Section 194R?

Any person other than Individuals and HUF (Individuals and HUF required to deduct TDS, if last year turnover is more than Rs. 1 crore in case of business or gross receipts more than Rs. 50 lakhs in case of profession.) are required to deduct TDS while making payments which is in the nature of perquisite or incentives whether in cash or in kind or partly in cash and partly in kind.

NOTE: -

This section i.e. TDS on payments which in the nature of perquisite or incentives whether in cash or in kind or partly in cash and partly in kind is not applicable while making such payments to non-resident.

Example: -

Q. Mr. Kunal an authorized seller of Tata products sold products worth Rs. 5 crores of Tata. As a token of appreciation Tata products gave Mr. Kunal a paid trip to Thailand, the market value of such trip is Rs. 2 lakhs. Discuss the TDS implications?

As per Section 194R when a business gives its distributors or channel partners any such perquisite or incentives whether in cash or in kind or partly in cash and partly in kind where value of such thing is more than 20,000 in the Financial Year then the provider of such benefits is required to deduct TDS @ 10%.

In the give case Tata products provided a fully paid trip to Mr. Kunal where value of such benefit is 2 lakhs so the tata products has to deduct TDS @ 10 on such value.

5. Rate of TDS under Section 194R?

The TDS rate under this Section is: -

6. Exemption under Section 194R?

No TDS if: -

• The Benefits during the Financial Year does not exceed Rs. 20,000.
• Employes receive benefits from their employers on which TDS is deductible u/s 192.
• There is no business relationship.
• The recipient is a non-resident.
• The Individuals/ HUF has T/o from business less than Rs. 1 Crore or gross receipts from profession less than Rs. 50 Lakhs.

7. Time limit for deposit of TDS under Section 194R?

The due date for deposit of TDS is as below: -

8. What is the due date for filing of TDS return under Section 194R?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: -

9. Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10. Fees/ Penalties for Late/ Non- Filing of TDS u/s 194R?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

11. FREQUENTLY ASKED QUESTIONS?

Q. What is the threshold limit for TDS under 194R?

A. The threshold limit for TDS under 194R is Rs. 20,000.

Q. Is Section 194R applicable when the recipient is a non-resident?

A. NO, this section does not apply when the recipient is non-resident.

Q. If the benefits give is non-monetary, then how to calculate price for TDS?

A. The price of a non-monetary benefit or perquisite should be calculated based on the fair market value or the purchase price of such products.

Q. Will discounts, cash discounts and rebates be considered as benefits or perquisites?

A. NO, they will not be considered as benefits or perquisites, they will be reduced from sales price.

Q. Who is required to deduct TDS u/s 194R?

A. The provider of benefits or perquisites provided to a resident in respect of business or profession is required to deduct TDS.