The Central Board of Direct Taxes (CBDT) on Thursday issued detailed guidance on withholding tax deduction under Section 194R of the Income Tax Act. It requires the deduction of TDS at the rate of 10% by anyone providing a benefit or indirect benefit, exceeding ₹20,000 per annum to a resident.
The provision was introduced in the last budget.
According to the guidelines, TDS must be deducted even when benefits or perquisites may be used by the owner, director, employee of the recipient entity or their relatives who, individually, may not operate a business or practice a profession.
TDS will be applicable in case of immobilizations, including the allocation of shares or cars to directors.
The provision shall not apply to sales discounts, rebates or rebates offered to customers, but shall apply to the seller offering incentives other than discounts or rebates, which are in cash or in kind. It can be, for example, a car, a television, computers, a gold coin, a mobile phone, a sponsored trip, a free ticket or drug samples for doctors.
The guidelines exempt public hospitals.
Business conferences will be exempt from TDS, with an addendum that does not include the leisure component and accompanying family members staying before or after the day of the conference.
The calculation of the value would be taken into account from April 1, the guidelines state.
“It is obvious that taxpayers should adapt their systems and tracking mechanisms for various routine transactions to identify and withhold tax on these benefits and perquisites,” said Sudin Sabnis, partner at the consultancy in business Nangia Andersen LLP.