CBDT has issued guidelines on the new rule of TDS. The Union Budget had added a new section, 194R, in the Income Tax Act, 1961, to check revenue leakage.
The new rule of Tax Deducted at Source (TDS) is coming into force from July 1. The new rule will apply to the business of sales promotion. Its impact will be especially on social media influencers and doctors.
The Central Board of Direct Taxes (CBDT) has issued guidelines on the new rule of TDS. The Union Budget had added a new section, 194R, in the Income Tax Act, 1961, to check revenue leakage.
Kamlesh C Varshney, Joint Secretary in the Finance Ministry, had explained the benefits, which he said include free drug samples received by doctors, foreign flight tickets or free Indian Premier League (IPL) tickets while on business and much more. Varshney emphasized that these should be disclosed while filing income tax returns.
What did CBDT say?
The Central Board of Direct Taxes (CBDT) said that the payer/deductor is not required to conduct a taxation check on the amount in the hands of the payee. Also the nature of asset given as additional benefit is not relevant. Even capital assets given as profit are covered under section 194R.
In addition, section 194R shall also apply to sellers who offer incentives other than discounts or rebates. This discount can be in the form of cash or items like car, TV, computer, gold coin, mobile phone, free ticket etc.
CBDT clarifies that section 194R will be applicable in case doctors working in the hospital get free samples of medicines. Hospital as an employer can treat such sample as taxable perquisite to the employees and deduct tax under section 192.
Whereas, for doctors working as consultants in a hospital and receiving free samples, TDS would ideally be applicable on the first hospital, which would require deduction of tax under section 194R in respect of consultant doctors.