Section 194R was inserted in the Income Tax Act, 1961 vide the Finance Act, 2022 and was made applicable w.e.f. 1st July, 2022. There were a lot of practical difficulties which were faced by the stakeholders and to remove the same, the CBDT issued Circular No. 12/2022 on 16th June, 2022
However, instead of removing difficulties, additional practical issues were created by that Circular. Recently, the CBDT has issued additional guidelines vide Circular No. 18/2022 dtd. 13th September, 2022
One Such Issue is TDS applicability under Section 194R on Dealer Conference.
QUESTION 1:- If there is a dealer conference to educate the dealers about the products of the company – Is it benefit/perquisite?
Answer: The expenditure pertaining to dealer/business conference would not be considered as benefit/perquisite for the purposes of section 194R of the Act in a case where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects:
(i) new product being launched
(ii) discussion as to how the product is better than others
(iii) obtaining orders from dealers/customers
(iv) teaching sales techniques to dealers/customers
(v) addressing queries of the dealers/customers
(vi) reconciliation of accounts with dealers/customers
However, such conference must not be in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.
Author’s Note :- Hence where the conference is like Sending to Dubai of Dealers who have achieved Yearly turnover of Say X Crores with their Families – The same is liable to TDS u/s 194R whereas on New Product Launch all dealers across the board are invited the same shall not be liable to TDS.
Further, in the following cases the expenditure would be considered as benefit or perquisite for the purposes of section 194R of the Act:-
(i) Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer/business conference.
(ii) Expenditure incurred for family members accompanying the person attending dealer/business conference
(iii) Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.
QUESTION 2 :- Are we required to Deduct TDS even if the Taxable Income of Dealer is below 2.5 Lacs Threshold and he gives declaration to this effect ?
Answer :- Yes. There is no requirement for deductor to verify whether the amount is taxable in the hands of the recipient or section under which it is taxable.
Question 3 :- How is the valuation of benefit/perquisite required to be carried out?
Answer :- The valuation would be based on fair market value of the benefit or perquisite except in following cases:-
(i) The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. In that case the purchase price shall be the value for such benefit/perquisite.
(ii) The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.
It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act.
Question 4 :- How to deduct TDS since no specific payment is made to dealer but it is a in-kind benefit ?
Answer :- As a deductor, you have two options :-
Option 1 :- Such dealer would pay tax in the form of advance tax. You as a deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in your TDS return along with challan number. This year TDS return format has been changed to include provisions for reporting such transactions.
Option 2 :- In the alternative, you as deductor may deduct the tax under section 194R of the Act and pay to the Government. The tax should be deducted after taking into account the fact the tax paid by him as TDS is also a benefit under section 194R of the Act. In the Form 26Q he will need to show it as tax deducted on benefit provided.
Question 5 :- Is there a requirement that all dealers must be invited in the conference to avoid TDS?
Answer :- It is not necessary that all dealers are required to be invited in a dealer/business conference for the expenses to be not considered as benefit/perquisite for the purposes of tax deduction under section 194R of the Act.
Question 6:- What if dealers arrive one day before and leave one day after?
Answer :- Expenditure on participants of dealer/business conference for days which are on account of over stay prior to the dates of conference or beyond the dates of such conference would be considered as benefit/perquisite for the purposes of section 194R of the Act.
However, a day immediately prior to actual start date of conference and a day immediately following the actual end date of conference would not be considered as over stay.
Question 7 :- If Dealers are going in Groups and all the expenditure is done in common, how to bifurcate how much is allocable to which dealer and thereby deduct TDS thereon ?
Answer :- Yes this is a genuine problem. Here again you have two options.
Option 1 :- Do all reasonable calculation to breakup the amount in individual dealers so that all may agree since this is ultimately taxable in their hands and then deduct TDS thereon.
Option 2 :- Simply disallow your expenditure in your tax computation and in that case you are not allowed to claim this expendtiure and the same will be added to your income. In that case, TDS is not required to be deducted from dealer.