The Central Board of Direct Taxes (CBDT) on Thursday issued guidelines seeking to address likely issues emanating from application of the newly introduced section 194R of the Income Tax Act for withholding 10% tax (TDS) on benefits or perquisites from non-salary sources.

The new provision part of the Finance Act 2022 will become effective from July 1.

According to the guidelines, it is not necessary for the payer/deductor to check the taxability of the sum in the hands of the payee before deducting TDS by clearly distinguishing the principles governing TDS under Section 195 from the TDS under Section 194R.

It is made clear that the benefit or perquisite covered under Section 194R can be either in cash or in kind or partly in cash and partly in kind. The nature of asset given as benefit or perquisite is not relevant and even capital assets given as benefit or perquisite are covered within the scope of Section 194R. CBDT categorically uses the phrase ‘of whatever nature’ on benefit or perquisite for fastening TDS liability on the payer.

However, CBDT has provided a breather on sales discount, cash discount and rebates allowed to customer by excluding them from the purview of Section 194R as their inclusion would put the seller into difficulties. Section 194R will apply to seller giving incentives, other than discount or rebate, which are in cash or kind e.g., car, TV, computers, gold coin, mobile phone, sponsored trip, free ticket, medicine samples to medical practitioners.

“The guidelines have been issued in time considering the section is effective from 1 July and seeks to provide clarity on multiple fronts. Certain aspects, particularly applicability of withholding tax on reimbursement of OPE’s, benefits provided in cases of recipient not engaged in business or profession etc. could open up a host of practical issues which taxpayers should brace themselves with,” said Sudin Sabnis, Partner, Nangia Andersen LLP.