The Treasury Department will clear doubts about the applicability of the new TDS provision regarding benefits or benefits received in a business or profession, a senior tax official said Wednesday.
The joint secretary of the Treasury Department Kamlesh C. Varshney said such benefits and benefits are income and are always taxable whether received in cash or in kind.
The 2022-23 budget provided for the provision of withholding tax (TDS) on such revenues to control tax revenue leakage.
The budget introduced a new section, 194R in the IT Act, requiring withholding of tax at source at a rate of 10 percent, by a person, who provides any benefit or advantage, more than Rs 20,000 per year to a resident, arising out of that resident’s business or profession.
The new provision will come into effect on July 1.
“This (benefits and perks) is an area where no one paid taxes despite receiving benefits and benefits in the course of business and profession… There is definitely a leak here and therefore this section 194R. Whatever the doubts, we are going to clear up the practical issues before July 1st,” Varshney said while talking to industry chamber members Assocham.
He said benefits such as free drug samples received by doctors, or free IPL tickets, foreign airline tickets received in the course of business or profession are income and must be reported on the income tax return.
For example, Varshney said if a doctor receives free samples, it should be shown as benefit or benefits and considered income, regardless of whether the drug company uses it as a sales promotion.
He said the company can claim a deduction for such sales promotion expenses, but that promotion would be taxable income in the hands of the person receiving it. “That’s why you have to subtract TDS”.
Emphasizing that 194R applies to free samples received by doctors, Varshney said the taxability of such benefits cannot be based on the fact that since free samples are not sold, it is not income. “Free samples have a value,” he said.