New TDS Rules under Section 194R

The concept of TDS was introduced in the Income Tax Act to collect tax at the very beginning of income. The TDS chapter in the Income Tax Act has various sections to deal with various types of income at different TDS rates. A new section, 194R, was added to the Income Tax Act.

The new TDS rule came into effect on July 1, 2022. It mandates the TDS at the rate of 10 per cent by an individual providing any benefit or perquisite to a resident that exceeds ₹20,000 in a year.

The new provision aimed to control tax revenue leakage. With the new TDS rules, TDS is applicable on a benefit of perquisite arising from a business or profession.

Nowadays, many social media influencers are promoting businesses. In return, they are getting many benefits in cash or kind. Many doctors are also getting benefits by involving in promotional activities of pharma companies. The new rule will put a check on such benefits and broaden the tax base.

The central government announced the new provision in the Union Budget 2022. Those who get more than ₹20,000 in cash or products in a year should disclose it in their income tax returns. They have to pay tax according to the value of the benefit they get.

The TDS is applicable for the products or freebies taken by social media influencers for business or sales promotions. However, the TDS will not be applicable if they return the products to the firm. The rule applies to all people giving incentives to any resident for their business promotion or marketing campaign.

The new rule will not apply to doctors working for a hospital as an employee if they get free samples of medicines. In such cases, the hospital is liable to deduct tax as per section 192.

Cash and sales discounts and rebates are not subject to TDS under the new rule, i.e. section 194R. Also, if a government organization or government hospital receives a benefit or perquisite, section 194R will not be applicable to it, since it is not engaged in business or profession.

Section 194R deals with the benefits or perquisites exchanged between professionals or business people. But, it is not associated with the employer and employee. If an employee receives benefits or freebies from the employer, then section 192 will be applicable.

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