15 Nov 2022

Section 194R of the Income Tax Act,1961

Section 194R of the Income Tax Act,1961

                                         10% TDS on Benefits and Shares Given to Directors


Allotment of shares to directors, providing cars to them, and a sponsored business trip or conference by a company will attract 10% tax deducted at source (TDS) from July 1.

The central Board of direct Taxes (CBDT) on Thursday issued detailed guidelines on deduction of tax at source under Section 194R of the Income Tax Act. It requires deduction of TDS at the rate of 10% by any person providing any benefit or perquisite exceeding Rs. 20,000 in Year to a resident.

The provision was introduced in the last budget. As per the guidelines, TDS is required to be deducted even where benefits or perquisites may be used by owner, director, and employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or exercising a profession. TDS will be applicable in case capital assets including allotment of shares or cars to directors.

The Provision will not be applicable on sales discount, cash discount or rebates offered to customers but will apply on the seller providing incentives other than discount or rebate which are in cash or kind these could be for instance, car, TV, computers, gold coin, and mobile phone, sponsored trip, free ticket, or medicine samples to medical practitioners.

The guidelines exempt government hospitals. Business conferences will be exempt from TDS; with a ride they do not include leisure component and family members accompanying participants stay before or beyond conference day.

The calculation of value would be taken into account from April 1, the guidelines said, “It is apparent that taxpayers would need to gear up their system and tracking mechanisms for various routine transactions to identify and withhold tax on such benefits and perquisites”. said Sudin Sabnis, partner at business consultant firm Nangia Andersen LLP.