If you have any business then knowing this rule properly will be beneficial for you. If you receive any bonus, incentive, gift or prize for meeting the sales target or making purchases more than the specified limit, then you will have to pay tax on it. This rule is going to come into effect from July 1, 2022.
Sometimes companies give incentives to suppliers, customers, distributors, agents or associates on meeting sales targets. Or even give incentives to others for recommending products. Along with this, incentive is also available for developing business relation. The person receiving this incentive is required to pay tax on it. But, till now such matters were not looked into by the Income Tax Department. That’s why no businessman used to pay tax on it.
In the new section 194R of the Income Tax Act, it has been said that if a business (company) gives to another person any benefit which is related to his business or profession, then it will have to deduct 10 percent TDS (on its value) thereon. This section will cover tour packages, free samples, gifts, gift vouchers/coupons or other benefits or incentives. Such incentives may be fully or partially in cash or may be converted into cash. However, there is a condition in this. That is, if the turnover of the beneficiary company or business is less than Rs 1 crore or the value of incentive is less than Rs 20,000 in any financial year, then this rule of TDS will not apply. This provision will be applicable only to the Resident of India. It can be easily understood with the help of an example. Suppose an agent of an insurance company receives a mobile phone worth Rs 50,000 from the company on meeting the sales target, then the insurance company will have to deduct TDS (Rs 50,000) on it. Since this amount (incentive value) will be reflected in the insurance agent’s Form 26AS, from which it will have to be added to his income. Earlier, such incentives were not tracked, due to which the person taking the incentive was saved from paying tax on it.
If a person does not add such incentives or benefits to his income, then the Income Tax Department can levy interest or penalty on it at the time of assessment. Similarly, if the business (such as a company) forgets to deduct TDS on such incentives or benefits, then it will not be allowed business expenditure under the provisions of the Income Tax Act. This provision of the Income Tax Act does not apply to the gift received by a company to the employee, as it comes under salary and TDS is deducted on it under 192 of the Income Tax Act.