Government of India

Ministry of Finance

Department of Revenue

(Central Board of Direct Taxes)

New Delhi, dated 16th June, 2022

Subject: Guidelines for removal of difficulties under sub-section (2) of section 194R of the Incometax Act, 1961

Finance Act 2022 insetted a new section 194R in the Income-tax Act, 1961 (hereinafter referred to as "the Act") with effect from I" July 2022.

The new section mandates a person, who is responsib le for providing any benefit or perquisite to a resident, to deduct tax at source @ IO% of the value or aggregate of va lue of such benefit or perquisite, before provid ing such benefit or perquisite. The benetit or perquisite may or may not be convertible into money but should arise either from carrying out of busi ness, or from exercising a profession, by such resident.

This ded uction is not required to be made, if the va lue or aggregate of va lue of the benefit or perquisite provided or like ly to be provided to the resident during the financial year does not exceed twenty thousand rupees.

The responsibility of tax deduction also does not apply to a person, be ing an Individual/Hindu undivided family (HUF) deductor, whose total sales / gross receipts / gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, during the financia l year immediately precedi ng the financial year in which such benefit or perquisite is provided by him.

Sub-section (2) of section 194R of the Act authorises the Board to issue gu idelines, for removal of difficu lties, with the approva l of the Central Government. These guidelines are req uired to be laid before each House of Parliament and are binding on the income-tax authorities and the person providing the benefit or perquisite.

Accordingly, in exerc ise of the power conferred by sub-section (2) of section 194R of the Act, the Board, with the prior approval of the Central Government, hereby issues the foll owing guidelines:-

Guidelines Question

1. Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under clause (iv) of section 28 of the Act, before deducting tax under section 194R of the Act?

Answer: No. The deductor is not required to check whether the amount of benefit or perquisite that he is providing wou ld be taxable in the hands of the recipient under clause (iv) of section 28 of the Act. The amount coul d be taxable under any other section like section 41(1) etc. Section 194R of the Act casts an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 10%. There is no fUither req uirement to check whether the amount is taxable in the hands of the rec ipient or under which section it is taxable.

In this regard it may be highlighted that in the context of section 195 of the Act it is a requirement to know whether the payment made by the deductor is income in the hands of the non-resident recip ient as section 195 of the Act requires deduction on any other sum chargeable under the pi'ovisions of this Act at the rates in force. Th us there is requ irement that deductor needs to verify if the "sum is chargeable under the Income-tax Act". The term " rate in fo rce" is defined in c lause (37A) of section 2 of the Act and it allows benefit of agreement under section 90 or section 90A of the Act, if elig ible, in determi ning the rate of tax at which the tax is to be deducted at source. Hence, there is flllt her requirement of checking if the amou nt is taxab le under tax treaty and if yes, at what rate. Such a requirement is not there in section 194R of the Act, in the absence of these two terms in this section. Hence, there is no requirement for deductor to verify whether the amount is taxable in the hands of the recipient or section under which it is taxable.

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