Circular issued by CBDT to remove difficulties on the interpretation of TDS on benefits or perquisites under Section 194R of the Income Tax Act, 1961 (‘ITL’).

Clarifications issued by CBDT

• In case of waiver or settlement of a loan by a bank/ financial institution, the same would not be subject to TDS under 194R;
• Any expenditure which is the liability of a person carrying out business or profession, if met by the other person is in effect benefit/perquisite provided by the second person. Where the bill of such expense is in the name of the service provider and it is incurred as a ‘pure agent’ of the service recipient (satisfies conditions as per GST Valuation Rules, 2017), the amount incurred by such ‘pure agent’, reimbursed by the recipient would not be treated as benefit/perquisite for the purpose of Section 194R;
• If out of pocket expenses form part of consideration, on which tax is deducted under any other section of the Income Tax Act, 1961 (including the out-of-pocket expenses), there will be no further liability under Section 194R;
• With respect to the dealers’ conference:
  1. It is clarified that it is not necessary that all the dealers must be invited for qualifying the expense incurred for the conference to be not considered as benefit/perquisite for the purpose of Section 194R;
  2. Expenditure on participants on account of overstay would be a benefit/perquisite. However, a day immediately prior and immediately after the conference would not be considered an overstay;
  3. If benefit/perquisite is provided in group activity whereby it is difficult to match the benefit/perquisite to each participant, the provider of such benefit/perquisite, may, at his option not claim such expense as deductible expenditure in his computation of total income. Upon making such a choice, he would not be required to deduct tax under Section 194R and thus would not be considered as Assessee in default under Section 201(1);
• Where a dealer receives a car as gift from the company, on which tax is duly deducted under Section 194R by the company and the dealer includes such benefit/perquisite in his return of income, it would be deemed that the actual cost of the car for the purpose of Section 32 shall be the amount of benefit included by the dealer in his return of income and thus, would be eligible to claim depreciation on the same, subject to fulfilment of other conditions specified for claiming the depreciation;
• Section 194R is not applicable on benefit/perquisite provided by, an organization in scope of The United Nations (Privileges and Immunity Act) 1947, an international organization whose income is exempt under specific Act of Parliament, an embassy, a High Commission, legation, commission, consulate, and the trade representation of a foreign state;
• In case of issuance of bonus/ right shares by a company which qualifies as a company in which public are substantially interested under Section 2(18) of the ITL, then TDS under Section 194R is not required to be deducted where such bonus/right shares are issued to all shareholders of the company.