The Central Board of Direct Taxes (CBDT) has given guidance on the new TDS agreements


Tax withheld at source (TDS), From July 1: If you are a doctor or a social media influencer, then you will need to follow the new income tax rule which comes into effect next month and will mandate a 10% withholding tax (TDS) on gifts received from sales promotions.

The Central Commission for Direct Taxation (CBDT) issued guidance last week on the applicability of the new TDS provisions regarding benefits received in a business or profession and said such indirect benefits may be either in cash or in kind, or partly in both forms. He stated that the payer/deductor need not verify the taxation of the sum in the hands of the beneficiary and that the nature of the asset given as a benefit or gratuity is irrelevant. Even fixed assets given as a benefit or gratuity are covered by the scope of article 194R.

Section 194R applies to sellers offering inducements, other than discounts or rebates, in cash or in kind, for example, car, television, computers, gold coins, mobile phone, sponsored trips, free tickets, drug samples to doctors.

The guidelines explain the circumstances under which the new TDS provision which will come into force on July 1 will apply. This new TDS provision was introduced in Budget 2022-23 to broaden the tax base and ensure that recipients of this type of sales promotion expenditure by businesses report it on their tax returns and pay taxes. on the value of the benefit.

A new section, Section 194R, of the Information Technology Act has been introduced which requires withholding tax at source at the rate of 10% by any person, granting a resident any benefit or indirect benefit exceeding 20,000 rupees per annum, resulting from the business or profession of that resident.

In the case of social media influencers, they will be liable for TDS if the product awarded to them by a company for its marketing efforts is retained by the individual. However, the TDS will not apply if the product is returned to the company, CBDT said.

“Whether this (product donated for social media promotional activities) is a benefit or a collateral benefit will depend on the facts of the case. In case of benefit or indirect benefit being a product like car, mobile, outfit, cosmetics etc. and if the product is returned to the manufacturing company after being used for the purpose of rendering a service, it will not be treated as a benefit/collateral benefit for the purposes of Section 194R of the Act. However, if the proceeds are retained, then they will be in the nature of an indirect benefit/advantage and tax will have to be deducted accordingly under Section 194R of the Act,” the CBDT notification explained.

The CBDT also clarified in its circular that no tax shall be deducted under Section 194R of the Income Tax Act on sales rebates, cash discounts and rebates granted to customers. However, the storyline would be a bit twisted if free samples were given away as relaxation does not apply to them.

In the case of physicians, the CBDT clarified that if physicians received free drug samples while employed in a hospital, Section 194R would apply to the distribution of free samples in the hospital. The hospital as an employer can treat these samples as a taxable benefit for the employees and deduct tax under Section 192. In such cases, the threshold of Rs 20,000 should be considered against the ‘hospital.

“For example, the free drug sample can be provided by a company to a doctor who is an employee of a hospital. The TDS under Section 194R of the Act must be deducted by the business in the hands of the hospital as the benefit/benefit is provided to the physician by virtue of being the employee of the hospital. So, in essence, the benefit or indirect benefit is provided to the hospital. The hospital may subsequently treat such benefit or perquisite as the benefit given to its employees (if the person who availed it is its employee) under section 17 of the Act and deduct the tax under section 192 of the Act. In such a case, it would first be taxable in the hands of the hospital and then deductible as a salary expense. Thus, ultimately, the amount would be taxed in the hands of the employee and not in the hands of the hospital. The hospital can obtain a tax credit deducted under section 194R of the law by providing its tax return. It is further clarified that the twenty thousand rupees threshold in the second proviso of subsection (I) of Section 194R of the Act shall also be considered in relation to the beneficiary entity,” the guidelines state.

For doctors who work as consultants to a hospital and receive free samples, the TDS would ideally first apply to the hospital, which in turn would require deducting tax under the article 194R with regard to medical consultants. To remove this difficulty, the CBDT clarified that as an alternative, the original provider of benefits or perquisites may deduct tax directly under Section 194R in respect of the consulting physician as as beneficiary.

In addition to the above, CBDT advised that Section 194R will not apply if the perquisite or perquisite is provided to a government entity, such as a public hospital, not carrying on business or profession.

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