Company or Profession perks now attract 10% TDS

From July 1, benefits received by professionals or businessmen in the exercise of their profession or business will be subject to 10% TDS (tax withheld at source) under the article 194R, introduced by the government in the 2022 budget.

In accordance with the guidelines of the Central Board of Direct Taxes (CBDT), the deduction must be made when the total value of the benefit exceeds 20,000 during a financial year and when the gross turnover or the deductor’s turnover exceeds 1 crore or profession exceeds 50 lakh in the previous financial year.

These benefits do not have to be cash and also include fixed assets.

“To give some common examples, amenities given to commissionaires like travel vouchers for their families to make sales, or a property consultant at a development project was assigned an apartment in a building to provide advice , or key company management personnel given valuable gifts for service to the company, will all be covered by Section 194R,” said Keval Sonecha, Partner, Sonecha & Amlani.

This provision will apply even when an owner or director of a company receives a car or is allocated shares. Social media influencers will also be affected, as samples or giveaways offered by companies for sales promotion purposes when not returned will attract TDS.

The main condition is that the benefit derives from the exercise of a commercial or professional activity. “194R covers benefits or indirect benefits exchanged between two businessmen or professionals. It does not trigger when the relationship is that of an employer and an employee,” said Prakash Hegde, a Bengaluru-based chartered accountant.

As for reimbursements made on expenses incurred in the exercise of an activity, they will be assimilated to services according to the name of the issuer of the invoice. For example, if Professional A pays out-of-pocket travel expenses for Company X and the invoice is generated in A’s name, the reimbursement he gets from X will be treated as a benefit and subject to 10% TDS. under section 194R. However, if the invoice is generated in the name of X, TDS will not apply.

Taxpayers should note that this provision applies regardless of whether the benefit received is taxable between them or not, and even if their taxable income is less than the 2.5 lakh threshold.

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