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The finance bill has proposed to add Section 194R to the Income Tax Act 1961. Although this change will be effective from July 1, 2022. This section has been inserted with a view to bring into tax those benefits or perquisite that a person receives during the course of business or profession which is not disclosed in the ITR.
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The proposed section states that any person who is responsible to provide a resident any benefit or perquisite (whether convertible into money or not) from a business or profession, such resident has to ensure that the tax has been deducted in respect of such benefit or perquisite at the rate of 10% of the value or aggregate of value of such benefit or perquisite.
So from the above statement we know that-
The provisions of this section shall not apply in the following cases:
Finance Minister said that as part of the business promotion strategy, businesses tend to pass on the benefits to their agents. The benefits here are taxable hence to track such transactions, tax deduction by the person who provides such benefits has been proposed.
There have been instances where such recipient doesn’t report the receipt of benefits in their Income Tax Return. This results in incorrect submission of particulars of income. Hence Section 194R has been inserted to institute a mechanism that can capture and detect such benefits/perquisite that has been unaccounted and untaxed.
There are various types of perquisites and benefits that are provided by businesses to their dealers, distributors, agents, channel partners etc. The idea behind providing perquisites and benefits is to incentivise and motivate them to assist in the business growth.
Some of the common types of benefits or perquisites can be-
By analysing this section, it can be inferred that transactions through issuance of credit notes will not be covered under this section and that benefit or perquisite from business or profession shall only be covered.
This means that it is necessary that the benefit or perquisite is connected with the business or profession of the recipient. Hence there should be a nexus between the recipient residents’ business and the benefit extended to him.
Hence in order to comply with this provision, the following should be ensured:
There are a few queries that taxpayers have with respect to the proposed provisions. Hence these queries must be cleared at the earliest to clear all ambiguities. Some of the common queries are as follows:
Section 194R in its present form would pose a huge compliance challenge for various businesses as there are different types of perquisites & benefits that are provided to their dealers/ distributors/agents/ channel partners etc. Additionally, this section has a few ambiguities with respect to some of its provisions, hence to solve the queries of taxpayers a detailed clarification should be issued.
Read our Article:Section 269SU of the Income Tax Act
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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