A new TDS provision introduced under section 194R will come into effect from July 1. This will cover freebies from companies and free medical samples which are given to doctors and gifts to influencers.
The new section mandates a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source at the rate of 10 percent of the value or aggregate of value of such benefit or perquisite, before providing such benefit or perquisite. The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business, or from exercising a profession.
This deduction is not required to be made, if the value of the benefit or perquisite does not exceed ₹20,000 during the financial year, clarifies CBDT via its latest guidelines.
The responsibility of tax deduction also does not apply to a person whose gross turnover does not exceed ₹one crore, or from profession does not exceed ₹50 lakh in a year.
It is important to note that the tax under section 194R of the Act is meant to be deducted whether the benefit or perquisite is in cash or in kind, or partly in cash and partly in kind.
Products given to influencers
In case a product such as car, mobile, outfit, cosmetics, among others is given to an influencer and if the product is returned to the manufacturing company after using, then it will not be treated as a benefit for the purpose of levying TDS.
However, if the product is retained by the influencer, then it will be in the nature of benefit and tax is meant to be deducted under section 194R, states the CBDT Guidelines.
Cash discounts and sales
The provision will not apply to sales discount, cash discount or rebates. Since TDS under section 194R of the Act is applicable on all forms of benefit, tax is required to be deducted.
However, it is seen that subjecting these to tax deduction would put seller to difficulty. To remove such difficulty, it is clarified that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers.
How will services be valued?
The valuation will be based on fair market value of the benefit or perk provided. However, when the company that provided the perk has itself purchased the product before giving it to the recipient, then the purchase price will be the value of such benefit.
Alternatively, if the company manufactures such items, then the price it charges too its customers shall be the value of such benefit.
It is also clarified that GST will not be included for the purpose of valuation of benefit for TDS under section 194R.
If doctor is an employee
The free medicine sample may be provided by a pharmaceutical company to a doctor who happens to be an employee of a hospital.
“The TDS under section 194R of the Act is required to be deducted by the company in the hands of hospital as the benefit is provided to the doctor on account of him being the employee of the hospital,” states the CBDT clarification.