From 1st July, 10% will be attracted on the profits received by professionals or businessmen in the course of carrying on their profession or business TDS (tax deducted at source) under section 194R, which was introduced by the government in the budget 2022.
According to the Central Board of Direct Taxes (CBDT) Guidelines, deduction is made when the total value of profit exceeds 20,000 in a financial year and when the gross sales or turnover of the deductor exceeds 1 crore or more by profession 50 lakh in the last financial year.
These gains are not necessarily in cash and may also include capital assets.
“To give some common examples, facilities offered to commission agents such as travel vouchers for their family to obtain sales, or a real estate consultant allotted a flat in a building to provide consultancy on a development project , or valuable gifts made to a key management personnel of the company for their services to the company, all shall be covered under section 194R,” said Kewal Sonecha, Partner, Sonecha and Amlani.
This provision will also be active when the owner or director of a company is given a car or shares are allotted. Social media influencers will also be affected as samples given by companies for the purpose of promoting sales or free of cost will attract TDS when not returned.
The primary condition is that profit must arise from the conduct of a business or profession. “194R includes profits or perquisites exchanged between two businessmen or professionals. When an employer and an employee have a relationship, it is not triggered,” said Prakash Hegde, a Bengaluru-based chartered accountant.
As regards reimbursement taken on expenses incurred while carrying on business, these will be treated as profit on the basis of which invoice has been issued. For example, if professional A incurs travel expenses out of his own pocket for company X and an invoice is generated in the name of A, the reimbursement which he gets from X will be treated as profit and 10% under section 194R. will be subject to TDS. However, if the invoice is generated in the name of X, TDS will not be applicable.
Taxpayers should note that this provision is applicable regardless of whether the profit received is taxable in their hands or not, and even if their taxable income is less than the following. 2.5 lakh limit.