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Chapter-heads I-5
Alphabetical Reckoner of TDS under section 194R on perquisites and benefits I-27
1
DEDUCTION OF TAX ON THE BENEFIT OR PERQUISITE IN RESPECT OF BUSINESS OR PROFESSION [SECTION 194R]
1.1 Salient features of section 194R providing for deduction of tax on the benefit or perquisite in respect of business or profession 1
1.2 Rationale for enacting section 194R 5
1.3 Ingredients of section 194R 5 2
‘PROVIDER OF BENEFIT OR PERQUISITE’/ ‘DEDUCTOR’/‘ENSURER’
2.1 Obligation is on any person responsible for providing benefit or perquisite (deductor) 7
2.2 Applicability to a non-resident provider 8
2.3 Exemption to specified individuals and specified HUFs from deducting tax under section 194R 9
2.3.1 Applicability of ICDSs for determining turnover of individual/HUF for determining whether he is liable to deduct TDS 9
2.3.2 Applicability of section 145A(ii) for determining turnover of individual/HUF for determining whether he is liable to deduct TDS 9
2.3.3 Applicability of section 194M to benefit or perquisite covered by section 28(iv)/section 194R 10
2.4 Whether Embassy/High Commissions are required to deduct tax under section 194R of the Act? 10
BENEFIT
OR
PERQUISITE SHOULD BE PROVIDED TO A SPECIFIED DEDUCTEE I.E. A RESIDENT RECIPIENT WHO SATISFIES SPECIFIED CONDITIONS
3.1 Who should be the recipient of the benefit/perquisite so as to trigger the obligation under section 194R(1)? 11
3.2 Recipient should not be employee of provider of benefit/ perquisite 13
3.2.1 Test of existence/non-existence of employer-employee relationship between deductor (provider) of benefit/ perquisite and recipient 14
3.3 Recipient must be carrying on business/profession 17
3.3.1 Payment made by company to Panchayat Samiti for village development/temple development/ compensation or any other reason for the smooth execution of projects-Whether TDS u/s 194R deductible on such payment? 18
3.3.2 Whether company is required to deduct TDS u/s 194R on payments made by it towards Donations/CSR Expenditure? 18
3.4 Resident recipient must be having a business or professional relationship with the provider of benefit/perquisite (deductor) 19
3.5 What if the recipient of the benefit or perquisite is a non-resident? In that case, will tax have to be deducted under section 195? 21
SPECIFIED BENEFIT/PERQUISITE
4.1 Specified benefit/perquisite: Benefit or perquisite which if provided triggers provider’s (deductor’s) liability to deduct TDS under section 194R 22
4.2 ‘Any benefit or perquisite’ 23
4.3 Meaning of ‘benefit’ 25
4.4 Meaning of ‘perquisite’
4.5.1 Whether company which is manufacturer of capital goods needs to deduct TDS under section 194R on 2-year free maintenance services provided to buyer of capital goods?
4.6
v. Compensation
4.7 Benefit or perquisite should be in the nature of income
4.8 Legal right to claim benefit or perquisite
4.9 Is it necessary that the benefit or perquisite must be in kind for section 194R of the Act to operate?
4.9.1 CBDT’s clarification in Circular No. 12/2022 clarifying that section 194K would apply to monetary benefits/ perquisites also
4.9.2 Amendment of section 194R by Finance Act, 2023 (Explanation 2) clarifying that monetary perquisite/ benefits are covered u/s 194R
4.10 Illustrative list of items that will be treated as benefit or perquisite for TDS purposes u/s 194R (as per CBDT’s Circular No.12/2022, dated 16.06.2022)
4.11
or perquisite, whether convertible into money or not
4.12 Link between section 28(iv) and section 194R
4.12.1 Comparison of section 28(iv) and section 194R(1)
4.12.2 Analysis of the amended section 28(iv)
4.12.3 Benefit or perquisite
4.12.4 ‘Value’ for section 28(iv) purposes
4.13 Benefit or perquisite must be ‘arising from business or the exercise of a profession, by such resident’
4.13.1 Payment made by company to Panchayat Samiti for village development/temple development/ compensation or any other reason for the smooth execution of projects - Whether TDS u/s 194R deductible on such payment?
4.13.2 Whether company is required to deduct TDS u/s 194R on payments made by it towards Donations/CSR Expenditure?
4.16 Discounts, rebates, gifts, incentives etc. to buyers - Whether liable to TDS under section 194R
4.17 Value of benefit or perquisite is ` 20,000 or less 63
OBLIGATION CAST UPON BY SECTION 194R ON THE “DEDUCTOR” (PROVIDER OF BENEFIT/PERQUISITE)
5.1 Obligation is to ‘ensure’ that tax has been deducted 65
5.2 How to comply with section 194R(1) and the first proviso thereto 66
5.3 CBDT’s clarification 66
5.4 Rate of TDS if deductee does not furnish PAN/or is a non-filer 68
5.5 Whether deductee can apply for a certificate of lower deduction or nil deduction 68
5.6 Whether non-deduction based on Form No. 15G/15H is applicable 69
5.7 It shall be ‘ensured that tax has been deducted’ before providing such benefit or perquisite (Time of deduction)
5.8 Meaning of ‘providing’ benefit or perquisite to a resident
5.8.1 Different stages of delivery of benefit/perquisite
5.8.2 Implications on the cancellation of the foreign tour by a dealer/distributor 73
5.9 Deduction of tax in case of continuous providing of benefits or perquisites 73
5.10 Obligation to ensure that tax required to be deducted has been paid if the benefit or perquisite is wholly in kind or partly in cash and partly in kind
5.10.1 Meaning of ‘in kind’
5.10.2 Meaning of ‘tax’
5.11 How to comply with the first proviso i.e. how to ensure that tax required to be deducted has been paid where perquisite/ benefit is wholly in kind or partly in cash and partly in kind?
5.12 Whether the first proviso can be construed as requiring deduction of tax at source u/s 194R where perquisite/benefit is wholly in cash/money?
5.13 Where perquisite/benefit is wholly in cash, or partly in cash and partly in kind, whether TDS under other applicable sections such as section 194J/section 194C/section 194H will also have to be deducted on cash perquisite/cash component of perquisite? In other words, will cash component attract TDS under section 194R as well as other applicable TDS sections? 79
‘REMOVAL OF DIFFICULTY CLAUSE’ - POWER OF CBDT TO ISSUE REMOVAL OF DIFFICULTIES GUIDELINES
6.1 Rationale for removal of difficulty clause in newly enacted law or newly enacted legal provision 82
6.2 Power of CBDT to issue guidelines for removing any difficulty that arises in giving effect to the provisions of section 194R 83
6.3 Removal of Difficulties Guidelines not binding on resident recipient for section 28(iv) purposes 84
6.4 Removal of difficulty Guidelines binding on ‘income tax authorities’ 84
6.5 Grounds on which the Removal of Difficulties clause as well as Guidelines/Orders issued thereunder can be challenged in a writ petition in High Court
85
6.6 Grounds on which Guidelines issued by CBDT under section 194R(2) can be challenged in writ petitions 85
7
VALUATION OF BENEFITS/PERQUISITES
7.1 How is the valuation of benefit/perquisite required to be carried out for the purposes of section 194R? 90
7.2 Valuation if item provided as perquisite is purchased by provider and provided to recipient 90
7.3 Valuation if item provided as perquisite is manufactured by the provider of benefit/perquisite 91
7.4 Valuation based on Fair Market Value 92
7.5 Grey areas in valuation-what about benefit/perquisite which is neither purchased nor manufactured by provider nor is a capital asset (e.g. services rendered free or at a huge discount, rental accommodation provided) 94
7.6 Above valuation norms not binding on the resident recipient for the purposes of section 28(iv)
7.7 Whether above valuation norms can be challenged in appellate fora? 96
APPLICABILITY
OF SECTION
8
194R TO PURELY MONETARY PERQUISITES/BENEFITS
8.1 Whether provisions of section 194R are applicable to wholly monetary perquisites?
8.2 Redemption/buy-back of FCCBs at a discount
8.3 Share application money subsequently written back in books of account
8.4 Subsidy given by company to dealer/distributor for purchase of van which was to be utilised for display and demonstration of logo of company
9
APPLICABILITY OF SECTION 194R TO PRINCIPAL AMOUNT OF LOAN WAIVED
9.1 Applicability of section 194R to loan waiver granted by bank to borrower under OTS
9.1.1 CBDT’s clarifications in Circular No.12/2022 and Circular No. 18/2022
9.1.2 Amendments made by Finance Act, 2023 to section 28(iv) and section 194R
9.2 Waiver by bank of loan taken by assessee for his personal purposes/Non-business purposes - Whether bank liable to deduct TDS
APPLICABILITY OF SECTION 194R/SECTION 28(iv) TO INTEREST-FREE
LOAN
10.1 Whether interest on interest-free loans to dealers, suppliers, etc. would be a ‘benefit or perquisite’?
11
APPLICABILITY OF SECTION 194R/SECTION 28(iv) TO DISCOUNTS, REBATES, GIFTS, INCENTIVES, CASHBACKS ETC.
11.1 Whether sales discount, cash discount, rebates, gifts, incentives to buyers/customers are benefit or perquisite for the purposes of section 194R/section 28(iv)?
11.2 Whether incentives to buyer in the form of free items other than items from his stock-in-trade or cash incentives will attract TDS under section 194R/section 28(iv)?
11.3 Cashbacks - Whether perquisite or benefit
12
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO AMOUNT RECEIVED UNDER CONSENT DECREE FROM SELLER OF PLOT FOR BREACH OF CONTRACT TO DELIVER POSSESSION OF PLOT
12.1 Amount received under consent decree from seller of plot for breach of contract to deliver possession after agreement to sell & receiving earnest money
12.2 CBDT’s views on applicability of section 194R
13
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO BENEFITS OR PERQUISITES PROVIDED IN THE FORM OF CAPITAL ASSETS
13.1 Benefits or perquisites provided in the form of capital assets
13.2 Benefits under advance license or DEPB
13.3 No benefit or perquisite arises where capital asset given conditionally under contract are returned as recipient failed to fulfil conditions
13.4 Valuation of benefit or perquisite in the form of a capital asset for section 194R purposes
13.5 Valuation of a benefit or perquisite in the form of a capital asset for section 28(iv) purposes
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO BENEFITS OR PERQUISITES PROVIDED IN THE FORM OF SHARES
14.1 No benefit or perquisite arises where shares given conditionally under contract are returned as recipient failed to fulfil conditions
14.2 Purchase of shares of a non-related company from parties other than the company, at a price less than fair market value
14.3 Issue of bonus shares/rights shares by a widely held company (i.e. a company in which public are substantially interested)Whether benefit/perquisite for section 194R purposes?
14.3A Issue of bonus shares/rights shares by a widely held company - Whether benefit/perquisite for section 28(iv) purposes?
14.4 Shares issued to director
14.4.1 Valuation
14.5 Valuation where benefit/perquisite is in the form of shares
14.5.1 Fair Market Value of quoted shares and securities as per Rule 11UA(1)(c)(a)
14.5.2
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO BENEFITS OR PERQUISITES PROVIDED IN THE FORM OF LAND
15.1 Where assessee-firm purchased a land with co-owner and received excess share in partition of land
15.2 Value of gift of land to preacher by disciple
15.3 Valuation of perquisite/benefit provided in the form of gift of land for section 194R purposes
15.4 Valuation of perquisite/benefit in the form of gift of land for section 28(iv) purposes
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO BENEFITS OR PERQUISITES PROVIDED IN THE FORM OF JEWELLERY
16.1 Applicability of section 28(iv)/section 194R to benefits or perquisites provided/received is in the form of jewellery 145
16.2 Valuation of jewellery for section 194R purposes 145
16.3 Valuation of perquisite/benefit in the form of gift of jewellery for section 28(iv) purposes 146
17
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO BENEFITS OR PERQUISITES PROVIDED IN THE FORM OF ARCHAEOLOGICAL COLLECTIONS, PAINTINGS, DRAWINGS, SCULPTURES OR ANY WORK OF ART
17.1 Applicability of section 28(iv)/section 194R to benefits or perquisites provided/received is in the form of archaeological collections, paintings, drawings, Sculptures or any work of art
17.2 Valuation for TDS purposes
17.3 Valuation of perquisite/benefit in the form of gift of archaeological collections, paintings, drawings, sculptures or any work of art for section 28(iv) purposes
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO BENEFITS OR PERQUISITES PROVIDED IN THE FORM OF CAR, FURNITURES/FIXTURES
18.1 Applicability of section 28(iv)/section 194R to benefits or perquisites provided/received is in the form of car, Furnitures/ fixtures provided to director 150
18.2 Valuation of car/furnitures/fixtures for section 194R purposes 152
18.2.1 Valuation of Brand new car 152
18.2.2 Valuation of second hand car owned by provider 153
18.3 Gift in kind (car of the co-sponsor of the campaign) to brand ambassador of environmental campaign 153
18.4 Valuation of perquisite/benefit for section 28(iv) purposes 154
COMPLIMENTARY COPIES PROVIDED BY PUBLISHERS TO AUTHORS/OTHERS
19.1 Backdrop
19.2 Applicability of section 28(iv)/section 194R to Complimentary Copies provided by publishers to authors
20
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO FREEBIES GIVEN BY PHARMA COMPANIES TO DOCTORS
20.1 Requirements of Medical Ethics, Explanation 1 to section 37(1) and Explanation 3 to section 37(1)
20.2 Whether freebies provided by pharma company to doctors tainted by unethicality and illegality and hit by disallowance under Explanation 1 and Explanation 3 to section 37(1) are perquisites for section 28(iv) and section 194R purposes?
20.3 Whether free samples to physicians/doctors are perquisites taxable in the hands of doctors u/s 28(iv) and attract TDS under section 194R?
21
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO GIFTS TO BRAND AMBASSADORS
21.1
21.3 How to comply with section 194R in respect of gift of expensive watch to brand ambassador by watch manufacturer
22
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO FOREIGN TOURS ORGANISED FOR DEALERS/ AGENTS WHO ACHIEVE TARGETS
22.1
22.2 What will be the TDS implications if an insurance company organises foreign travel for its agents?
23
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO PRODUCTS GIVEN FREE TO SOCIAL MEDIA INFLUENCERS
23.1 Applicability of section 28(iv)/section 194R to products given free to social media influencers 171
23.2 Valuation for TDS u/s 194R purposes 172
23.3 Valuation of perquisite/benefit to SMIs for section 28(iv) purposes 172
24
APPLICABILITY OF SECTION 28(iv)/ SECTION 194R TO REIMBURSEMENTS
24.1 Reimbursements 173
24.2 Making payment to someone who has not incurred the expense to be passed on to someone else, is not “reimbursement”
24.3 Whether reimbursement of out of pocket expense incurred by service provider in the course of rendering service is benefit/ perquisite? 175
25
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO DEALERS’ CONFERENCE
25.1 Applicability of section 28( iv )/section 194R to dealers’ conference 183
25.2 Valuation of dealers’ conference for section 194R purposes 186
25.3 Valuation of perquisite/benefit for section 28(iv) purposes 187
26
APPLICABILITY OF SECTION 28(iv)/ SECTION 194R TO AMALGAMATION
26.1 Where assessee-company amalgamated with 3 companies and Net book value of assets taken over exceeded consideration paid for acquiring 3 companies 188
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO SHAREHOLDER’S LOAN TO COMPANY CONVERTED INTO HIS EARNEST MONEY FOR PROPERTY SALE TO HIM AND FORFEITED BY COMPANY FOR FAILURE TO PAY BALANCE
27.1 Shareholder’s loan to company converted into his earnest money for property sale to him and forfeited by company for failure to pay balance
APPLICABILITY OF SECTION 28(iv)/SECTION 194R TO NON-MONETARY BENEFITS GIVEN TO PARTNER
28.1 Applicability of section 28(iv)/section 194R to perquisites given to the partner 191
28.2 Valuation of non-monetary perquisites given by professional firms/LLPs to their partners for section 194R purposes 192
28.3 Valuation of perquisite/benefit for section 28(iv) purposes 192
28.4 At what stage to ‘ensure’ TDS deduction as per section 194R 192
APPLICABILITY OF SECTION 194R TO ASSET TRANSFERRED TO RETIRING PARTNER
29.1 Applicability of section 194R to asset transferred to a retiring partner 193
PERQUISITES/BENEFITS PROVIDED TO A DIRECTOR OF A COMPANY
30.1 Whether company directors are employees and payments to them are liable for TDS u/s 192? 194
30.2 Buses owned by transport company sold to directors at written down value which is much below fair market value 195
30.2.1 Valuation
30.3 Repairs and renovations to own apartments of directors at cost to company
30.4 If no office in the residential accommodation provided to director, residence and other facilities cannot be treated as used for official purposes
31
PERQUISITES PROVIDED BY HOSPITAL TO DOCTORS
31.1 TDS on Perquisites/Benefits provided by Hospital to Doctors 196
31.2 Tests to Determine Whether Consultant Doctors are Employees of Hospital or Independent Professionals 196
31.3 Net Position which emerges 205
31.4 Perquisites/benefits provided by pharma companies to doctors of a hospital 206
32
TIPS COLLECTED BY HOTEL/FOOD DELIVERY APPS FROM CUSTOMERS AND PAID OVER TO EMPLOYEES/‘DELIVERY PARTNERS’
32.1 Tips collected by hotel from customers and paid to employees 207
32.2 Whether tips collected by food delivery apps and paid to delivery boys who are its employees are liable for TDS u/s 192 208
32.3 Whether TDS deductible on these tips u/s 194R, as TDS u/s 192 does not apply 208
33
BAD DEBTS WRITTEN OFF - WHETHER PERQUISITE/BENEFIT LIABLE FOR TDS U/S 194R
33.1 Bad debts written off - Whether perquisite/benefit liable for deduction of TDS under section 194R? 209
33.1.1 Whether writing off debt is a benefit for the debtor? 210
33.1.2 Whether such benefit could be said to be ‘provided’ by the creditor? 210
33.2 Waiver of interest on delayed payments - Whether liable to TDS u/s 194R 211
REWARDS TO ATHLETES/SPORTSPERSONS WHO WIN MEDALS IN OLYMPICS/WORLDS ETC.
34.1 Backdrop
34.2 Rewards received by Olympic/Asiad/CWG medal winners from the Central Govt. or any State Govt. are tax-free u/s 10(17A)(ii)
34.3 Awards & rewards not covered by CBDT’s exemption Order u/s 10(17A)(ii)
34.4 Amateur/Non-professional sportsperson v. Professional Sportsperson
34.5 Award received by non-professional/amateur sportspersonWhether taxable? Whether liable to TDS u/s 194R?
34.6 Award received by a professional sportsperson - Whether taxable? Whether liable TDS u/s 194R?
34.7 Rewards not covered by CBDT’s exemption order u/s 10(17A) (ii) - Whether taxable? Whether liable to TDS u/s 194R?
35
FREQUENTLY ASKED QUESTIONS (FAQs)
35.1 Sir, in guidelines, Board has mentioned of one time settlement is liable for TDS so whether bad debts written off is also liable for TDS?
35.2 What if the benefit has been provided by a person but not utilised it - Can it be said no advantage was received/availed/enjoyed/ gained anything from it and hence not a benefit. For instance leisure trip arranged for dealers but few of them could not go for the trip will it be subject to TDS u/s 194R considering the language used u/s 194R is ‘providing’?
35.3 Is section 194R applicable on perquisites provided under section 17(1) and 17(2) under head salary?
35.4 TDS cannot be deducted on consideration given in kind. Can it be said that after ascertaining the fair market value of the consideration, TDS can be deducted?
35.5 How it is practicable to deduct tax from others when its providing at free of cost?
35.6 Discount meant for ultimate consumer, reimbursed by distributor to retailer, by company to distributor. Would it covered under section 194R or company can claim this as discount?
35.7 If one is deducting TDS on reimbursement of expenses of CHA, u/s 194C, whether one is supposed to deduct TDS u/s 194R on reimbursement of expenses?
35.8 If car, laptop, foreign trip, etc. is given, on what amount the TDS will be deducted?
35.9 We are dealing with the Laboratory where we provide an instrument worth ` 4 lacs FOC and earning from its consumables within 3 years span of the business
35.10 A manufacturer provides reimbursement to its distributor for the free goods given by him to retailers. Are these benefits or perquisites?
35.11 An FMCG company provides reimbursement to the distributor for the goods delivered to the location of the retailers. Are these benefits or perquisites?
35.12 Whether complimentary copies of the books given by publisher to author a benefit or perquisites?
35.13 A company agrees to arrange foreign tours for dealers and distributors/agents who achieve specific targets. Who has to comply with section 194R? The company or the tour operators/ airlines/hotels who after accepting payments deliver the promised foreign tour to dealers/distributors/agents?
35.14 A client pays additional sum to architect for good work: TDS under section 194J or 194R or both sections?
35.15 A publisher provides complimentary copies to authors. How to value this perquisite or benefit. Publisher sells book at 40% discount to distributor and at 10% discount to end customers. Which price to adopt for valuation?
35.16 Whether the Company needs to deduct tax under section 194R on goods issued to vendors as a free sample?
AVENUES FOR LITIGATION
36.1 Backdrop
36.2 CBDT’s Clarification that section 194R has no nexus with section 28(iv)
36.3 CBDT’s Clarification on applicability to wholly monetary perquisites
36.4 Clarification on reimbursement in Question 7 of the Circular runs contrary to judicial definitions of reimbursement and section 190
36.5 CBDT’s clarification on valuation not clear and comprehensive 230
36.6 Benefit/perquisite arising from business or profession of recipient 231
36.7 CBDT’s clarification implying bad debts written off unilaterally will attract TDS 231
36.8 Reliance in Circular on Judicial decision reversed by Supreme Court 231
36.9 CBDT’s clarification that free samples will attract TDS under section 194R 231
AMENDMENTS MADE TO INCOME TAX RULES CONSEQUENT TO SECTION 194R
37.1 Separate reporting of tax payments made in accordance with Provisos to sections 194B, 194R and 194S
APPLICABILITY OF PENALTY AND PROSECUTION FOR DEFAULT IN DEDUCTING TDS U/S 194R
38.1 Consequential amendments by FA, 2023 to penalty provisions in section 271C to provide for penalty for violation of section 194R
38.1.1 Pre-amended provisions of section 271C
38.1.2 Consequential amendments to section 271C necessitated by insertion of new TDS sections 194R and 194S by the Finance Act, 2022 and new section 194BA inserted by Finance Act, 2023
38.2 Consequential amendments by FA, 2023 to section 276B to provide for prosecution for violation of section 194R
38.2.1 Pre-amended section 276B
38.2.2 Consequential amendments to section 271C necessitated by insertion of new TDS sections 194R and 194S by the Finance Act, 2022 and new section 194BA inserted by Finance Act, 2023
38.2.3 Amendment by Finance (No. 2) Act, 2024 w.e.f. 01.10.2024 240
Benefit or perquisite should be provided to a Specified Deductee i.e. a resident recipient who satisfies specified conditions
3.1 Who should be the recipient of the benefit/perquisite so as to trigger the obligation under section 194R(1)?
From a perusal of section 194R, and the opening para of CBDT’s Circular No. 12/2022 and CBDT’s reply to Question No. 4 in the said Circular, it is clear that obligation under section 194R is triggered if the benefit or perquisite is provided to a resident person(recipient/ payee) who satisfies the following conditions:
(i) Recipient is not employee of the provider of benefit or perquisite [See Para 3.2]
(ii) Recipient must be carrying on business or exercising a profession or at least engaged in adventure in the nature of trade [See Para 3.3]
Additionally, in view of the ratio of various judicial decisions, the following requirement should also be satisfied:
(iii) Recipient must have a business/professional relationship with provider of benefit/perquisite [Para 3.4]
If conditions in (i) to (iii) are satisfied by the resident recipient of perquisite or benefit, the “deductor” (provider of benefit/perquisite) [Chapter 2] is required to fulfil the obligation cast upon him by section 194R [Chapter 5]. So long as conditions (i) to (iii) are satisfied, liability of deductor under section 194R is triggered irrespective of
who actually avails the benefit/perquisite or uses it by virtue of any connection/relationship with recipient.
Is recipient of benefit/perquisite a resident
Section 194R does not apply
Is he employee of benefit/perquisite provider
Is he carrying on business on profession?
Is perquisite/ benefit arising from business/profession of the recipient?
Section 194R applies
TDS to be deducted under section 192; section 194R does not apply.
3.2 Recipient should not be employee of provider of benefit/perquisite
Resident recipient should not be employee of provider of benefit/ perquisite. If an employer-employee relationship exists between the provider and the recipient, the tax is deductible under section 192 and not under section 194R. If hospital provides any benefit/ perquisite to doctor who is employee, then TDS is deductible under section 192. If hospital provides benefit or perquisite to a consultant doctor (with whom there is ‘contract for services’ and not “contract of services”), TDS is deductible under section 194R. [See Chapter 31]
Now question arises what is the legal position where a free medical sample is provided by a pharma company to a doctor who is an employee of the hospital? Will the position be different if free medical sample is provided to consultant doctor of a hospital?
Question No.4 of CBDT’s Circular 12/2022, dated 16.06.2022 clarifies under:
“.….It is further clarified that these benefits/perquisites may be used by owner/director/employee of the recipient entity or their relatives who in their individual capacity may not be carrying on business or exercising a profession. However, the tax is required to be deducted by the person in the name of recipient entity since the usage by owner/Director/Employee/relative is by virtue of their relation with the recipient entity and in substance the benefit/perquisite has been provided by the person to the recipient entity. To illustrate, the free medicine sample may be provided by a company to a doctor who is 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/perquisite is provided to the doctor on account of him being the employee of the hospital. Thus, in substance, the benefit/ perquisite is provided to the hospital. The hospital may subsequently treat this benefit/perquisite as the perquisite given to its employees (if the person who used it is his employee) under section 17 of the Act and deduct tax under section 192 of the Act. In such a case it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital. Hospital can get credit of tax deducted under section 194R of the Act by furnishing its tax return. It is further clarified that the threshold of twenty thousand rupees in the second proviso to sub-section (1) of section 194R of the Act is also required to be seen
with respect to the recipient entity. Similarly, the tax is required to be deducted under section 194R of the Act if the benefit or perquisite is provided to a doctor who is working as a consultant in the hospital. In this case the benefit or perquisite provider may deduct tax under section 194R of the Act with hospital as recipient and then hospital may again deduct tax under section 194R of the Act for providing the same benefit or perquisite to the consultant. To remove difficulty, as an alternative, the original benefit or perquisite provider may directly deduct tax under section 194R of the Act in the case of the consultant as a recipient.”
3.2.1 Test of existence/non-existence of employer-employee relationship between deductor (provider) of benefit/perquisite and recipient
TDS is deductible in respect of perquisite/benefit under section 192, and not under section 194R, when relationship of employer-employee exists between the provider of perquisite/benefit and the recipient.
The following points are noteworthy:
In order to attract TDS u/s 192, payee (recipient) should be an individual who is an ex-employee or present employee or prospective employee.
If the payee is a person other than individual (e.g. firm/LLP/ HUF/company), then the payment can attract TDS under section 194C or section 194D or section 194G or section 194H or section 194J or section 194M or section 194R but not under section 192.
If payee is an individual and the relationship between payer and payee is not employer-employee but client-independent contractor/service provider, then payment would not attract TDS under section 192 but may be liable for TDS under section 194C or section 194D or section 194G or section 194H or section 194J or section 194M or section 194R.
Halsbury’s Laws of England (4th edition, Vol.16, Para 501) specifies four indicia of a contract of services: (1) the employer’s power of selection of his employee, (2) the payment of wages or other remuneration, (3) the employer’s right to control the method of doing work; and (4) the employer’s right of suspension and dismissal. However, Halsbury’s Laws also notes that none of the above tests are of universal application. Where superior staff with professional
qualifications are employed, such as senior hospital staff, eminent journalists, the employer can have little control on what work the employee is to do and no control at all in the manner in which it is to be done. In other cases, the employer may have complete control over the manner in which a worker is to work for him and the work may be of a kind usually done by employees, but the worker may nevertheless be an independent contractor and in such cases may be known as a ‘labour only sub-contractor’.
In Ram Parshad v. CIT [1972] 86 ITR 122, the Supreme Court held that for ascertaining whether a person is a servant or an agent, a rough and ready test is whether under the terms of his employment the employer exercises a supervisory control in respect of the work entrusted to that person. A servant acts under the direct control and supervision of his master. An agent on the other hand, in the exercise of his work, is not subject to the direct control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal. However, the above test is not universal in its application. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. Generally it may be possible to say that the greater the amount of direct control over the person employed, the stronger is the conclusion in favour of his being a servant. Similarly, the greater the degree of independence the greater the possibility of the services rendered being in the nature of principal and agent. It is not possible to lay down any precise rule of law to distinguish one kind of employment from the other. The nature of the particular business and the nature of the duties of the employee will require to be considered in each case in order to arrive at a conclusion as to whether the person employed is a servant or an agent. In each case the principle for ascertaining remains the same.
In Lakshminarayan Ram Gopal & Son Ltd. v. Govt. of Hyderabad [1954] 25 ITR 449 (SC), it was held that the distinction between a servant or an agent can be summarised as follows: (i) generally a master can tell his servant what to do and how to do it; (ii) generally a principal cannot tell his agent how to carry out his instructions; (iii) a servant is under more complete control than an agent; (iv) generally, a servant is a person who not only receives instructions from his master but is subject to his master’s right to control the manner in which he carried out those instructions; an agent receives
his principal’s instructions but is generally free to carry out those instructions according to his own discretion; (v) generally a servant qua servant has no authority to make contracts on behalf of his master; generally, the purpose of employing an agent is to authorise him to make contracts on behalf of his principal; (vi) generally an agent is paid commission upon effecting the result which he has been instructed by his principal to achieve; (vii) generally a servant is paid wages or salary.
As noted in Halsbury’s Laws of England and by the Supreme Court in Ram Parshad v. CIT [1972] 86 ITR 122, the test of whether employer’s complete control over work be done and the manner of its execution cannot decide in all cases whether the person hired is his employee/servant or an independent contractor/professional. This problem especially arises in the matter of doctors appointed as consultant doctors by hospitals. Often, disputes arise between the assessee-hospitals and income-tax department as to whether the payments by hospitals/polyclinics to doctors are ‘salaries’ liable to TDS under section 192 or ‘payments for professional services’ liable to TDS under section 194J. Now, such dispute will arise in the context of deduction of TDS in respect of perquisites/benefits provided by hospital to its doctors. These consultant doctors are eminent professionals in their fields of specialisation and the “control and supervision by employer” test fails.
It must be noted that merely by designating doctors as ‘consultant doctors’, hospitals cannot deduct lower TDS (on payments made/ perquisites provided to doctors) under section 194J/section 194R and escape higher TDS at slab rates applicable to salaries. [See Chapter 31 for detailed discussion].
Also, in case of digital platforms, the conventional test of “control and supervision by employer” would fail. There is no way a ride-hailing services or app can dictate to its onboarded or platformed drivers how they should drive the car/do their job. There is no way they can supervise it. Nor can an aggregator for plumbers, carpenters etc. dictate to its onboarded service providers how they should do the job as these are very skilled jobs. There is no way the aggregator can supervise work done. Therefore, in Uber BV and others (Appellants) v. Aslam and others (Respondents) [2021] UKSC 5, decided 20.02.2021, the UK Supreme Court, in deciding whether Uber drivers were employees of Uber or not, applied the following test laid down by the Supreme Court of Canada in McCormick v. Fasken Martineau DuMoulin LLP 2014 SCC 39; [2014] 2 SCR 108, para 23:
examining how two synergetic aspects function in an employment relationship: control exercised by an employer over working conditions and remuneration, and corresponding dependency on the part of a worker.
3.3 Recipient must be carrying on business/profession
ii Explanation 3 any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession”Explanation
Circular 12/2022, dated 16.06.2022 shall not apply not carrying on business or professione.g.i.e
of income (e.g. profits and gains from business or profession/income from other sources), then TDS will be deductible under section 194R.
3.3.1 Payment made by company to Panchayat Samiti for village development/temple development /compensation or any other reason for the smooth execution of projects-Whether TDS u/s 194R deductible on such payment?
The benefit or perquisite provided would come under the TDS net of Section 194R only if it is ‘arising from’ [Para 4.14] business or the exercise of a profession by the recipient of such benefit. The causal connection suggested by the words “arising from” is that one (benefit/perquisite provided to resident recipient) originates from or springs forth or results from or proceeds as a consequence of the other (carrying out a business or the exercise of a profession by the resident recipient). The causal connection, according to judicial precedents, suggests a proximate cause. In other words, the business carried out by the resident recipient or the profession exercised by him should be the proximate cause of benefit or perquisite provided to him. The recipient (i.e., panchayat samiti) is not engaged in any business or profession. Where the recipient is not engaged in any business/profession, it cannot be said that any perquisite/benefit has arisen to him from business or the exercise of a profession.
So, it is opined that even if there is ‘providing’ of any ‘benefit’ or ‘perquisite’, the same is out of the purview of Section 194R. As the recipients cannot be said to carry on any business or profession, no perquisite or benefit can be said to arise to the recipient from business or exercise of a profession and no tax is required to be deducted under Section 194R. It will be futile to examine the questions of whether what is given is a ‘perquisite’ or ‘benefit’.
3.3.2 Whether company is required to deduct TDS u/s 194R on payments made by it towards Donations/CSR Expenditure?
Section 194R has no application because the recipients (i.e., CSR funds or other donees) are not engaged in any business or profession. (Refer to the discussion in Para 3.3.1 above)
3.4 Resident recipient must be having a business or professional relationship with the provider of benefit/perquisite (deductor)
In the following instances, perquisites/benefits were held to arise from business or exercise of profession and hence held taxable under section 28(iv):
Where assessee, a film actress, had done promotional activity on being brand ambassador of NDTV Toyota Greenathon campaign and had clearly promoted brand Toyota, receipt of Toyota car as gift in this connection had rightly been added in her hands as perquisites under section 28(iv) [Ms. Priyanka Chopra v. Dy. CIT [2018] 89 taxmann.com 286 (Mumbai - Trib.)]
Where assessee film actress received a watch worth ` 40 lakhs as a gift from the company for which she had undertaken advertisements and promotional activities on remuneration basis, tax authorities were justified in making an addition of said gift to assessee’s income as perquisite under section 28(iv) [Ms. Priyanka Chopra v. Dy. CIT [2018] 89 taxmann.com 287 (Mumbai - Trib.)]
In the following instances, perquisites/benefits were held to NOT arise from business or exercise of profession and hence held not taxable under section 28(iv):
The assessee, a film actor, received villa from Dubai based company. It was held that the mere fact that assessee attended annual day celebrations and addressed to employees of donor company, it did not amount to rendering professional services or carrying out brand endorsement activities and, thus, value of villa could not be brought to tax under sec. 28(iv). In view of the above, tax is not deductible under section 194R. [Assistant Commissioner of Income-tax, Central Circle 29, Mumbai v. Shahrukh Khan [2017] 84 taxmann.com 209 (Mumbai - Trib.)]
Where assessee purchased shares of a non-related company at a price less than fair value as it was a loss making concern, no benefit arose to assessee which could be brought to tax under section 28(iv). The assessee in this case purchased certain shares at a certain price from parties other than the company whose shares were acquired. Such investment cannot be said to be a
Rs. 795/-
TDS ON BENEFITS OR PERQUISITES UNDER SECTION 194R
AUTHOR : Srinivasan Anand G.
PUBLISHER : Taxmann
DATE OF PUBLICATION : March 2025
EDITION : 4th Edition
ISBN NO : 9789364555524
NO. OF PAGES : 272
BINDING TYPE : Paperback
DESCRIPTION
This book is a concise, up-to-date commentary on Section 194R (TDS on benefits/perquisites) and its interplay with Section 28(iv) under the Income-tax Act. It simplifies these provisions, incorporates CBDT's latest clarifications, and provides practical valuation norms. Readers are guided through TDS obligations on benefits or perquisites—whether in cash, kind, or both. This book is intended for the following audience:
• Chartered Accountants, Company Secretaries, and Lawyers
• CFOs, Finance Managers, and Accounts Teams
• Tax Consultants and Advisers
• Business Owners & Startups
The Present Publication is the 4th Edition | 2025, amended by the Finance Act 2025. This book is authored by CA. Srinivasan Anand G., with the following noteworthy features:
• [Comparative Analysis of Sections 194R & 28(iv)] O ers insights into how the two sections interrelate and clarify their respective scopes
• [Detailed Analysis of New Section 28(iv)] Explores the expanded definition of taxable benefits or perquisites under the Income-tax Act, especially in light of recent amendments
• [Analysis of CBDT Circulars] Explains crucial o cial clarifications on TDS obligations, valuation, and procedural aspects
• [Valuation Norms for Perquisites/Benefits] Guides readers on how to measure or determine the fair market value of benefits, whether they are capital assets, shares, gifts, discounts, waivers, or other forms
• [Illustrative Case Studies] Showcases practical scenarios such as free samples, foreign tours, gifts to brand ambassadors, loan waivers, etc., and explains TDS treatment under Section 194R
• [Exhaustive FAQs] Answers practical questions on applicability, compli ance challenges, coverage, and possible pitfalls
• [Alphabetical Reckoner of Benefits/Perquisites] A ready reference for quick look-ups of various kinds of benefits/perquisites and their TDS implications