Benefits & Perquisites in GST and Section 194R - Income Tax Act 1961

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⚖️ Disclaimer

This resource is for educational purposes only and does not constitute legal advice. Please consult a qualified tax professional for specific guidance on your tax matters.

🎁 PART 1: BENEFITS AND PERQUISITES IN GST

📋 1. Overview of Benefits and Perquisites in GST

1.1 What are Benefits and Perquisites?

Benefits and Perquisites refer to any advantage, facility, or privilege provided by an employer to an employee or by a business to its stakeholders, over and above the regular salary or consideration. In GST, these are treated as supply of goods or services.

1.2 Legal Framework

Key GST Provisions:

Section 7 of CGST Act 2017: Defines "Supply" - includes all forms of supply of goods or services for consideration by a person in the course or furtherance of business
Section 15 of CGST Act 2017: Value of taxable supply - determines how to value benefits and perquisites
Schedule I of CGST Act 2017: Activities to be treated as supply even if made without consideration
Rule 27-28 of CGST Rules 2017: Valuation rules for determining the value of supply

1.3 Types of Benefits and Perquisites

Type	Description	GST Treatment	Examples
Monetary Benefits	Cash or cash equivalent benefits	Value = Amount paid	Bonus, Incentives, Cash Awards
Non-Monetary Benefits	Goods or services provided	Value = Fair Market Value or Cost	Company Car, Laptop, Mobile Phone
Accommodation	Residential facilities	Value = Rent or Market Value	Company Housing, Hotel Stay
Transport Benefits	Travel facilities	Value = Actual Cost or Market Rate	Company Vehicle, Fuel, Driver
Medical Benefits	Health facilities	Value = Cost of Service	Health Insurance, Medical Treatment
Education Benefits	Educational facilities	Value = Fees or Cost	School Fees, Training Programs
Club Memberships	Recreational facilities	Value = Membership Fee	Gym, Golf Club, Social Clubs
Stock Options	Equity benefits	No GST (Capital in nature)	ESOP, Share Grants

💰 2. Valuation Rules for Benefits and Perquisites

2.1 Section 15 - Value of Taxable Supply

Basic Principle: The value of supply of goods or services shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both.

2.2 Rule 27 - Value of Supply of Goods or Services where Consideration is not Wholly in Money

Scenario	Valuation Method	Order of Preference
Open Market Value	Price at which goods/services are ordinarily supplied	1st Preference
Cost-Based Method	Cost of production + 10% markup	2nd Preference (if OMV not available)
Similar Goods/Services	Value of similar goods/services	3rd Preference
Residual Method	Reasonable means consistent with Section 15	Last Resort

2.3 Rule 28 - Value of Supply of Goods or Services between Distinct/Related Persons

Key Point: When goods or services are supplied between related persons or distinct persons, the value shall be Open Market Value (OMV). If OMV is not available, follow the hierarchy under Rule 27.

2.4 Special Valuation Scenarios

Scenario	Valuation Approach	GST Implication
Company Car for Employee	5-20% of purchase cost per year (depending on engine capacity)	GST on deemed supply value
Mobile Phone	Actual cost if personal use <20%, else proportionate value	ITC available if business use
Laptop/Computer	Actual cost (usually business use)	Full ITC if exclusively for business
Accommodation	15% of salary or actual rent (whichever is lower) for specified cities	GST on accommodation value
Free Meals	Actual cost if value <₹50 per meal, no valuation needed	No GST if value <₹50 per meal
Gift to Employee	Invoice value or market value	No GST if value <₹50,000 per annum per employee

2.5 Important Exemptions

                    🎯 Key Exemptions:
                    Salary to Employee: Not a supply under GST - Schedule III Entry 1
Gifts up to ₹50,000: Gifts to employees not exceeding ₹50,000 per annum per employee
Food/Beverage to Employees: Exempted if provided during working hours at workplace
Activities by Employer-Employee Relationship: Not considered as supply if no separate consideration

                

📚 3. Practical Examples

Example 1: Company Car Provided to Employee

Scenario:

ABC Ltd. provides a company car (1600cc engine) to its senior manager. The car was purchased for ₹12,00,000. The employee uses it for both official and personal purposes.

GST Treatment:

Valuation:

Annual perquisite value for car between 1.6 to 2.0 litres = 10% of actual cost
Annual Value = 10% of ₹12,00,000 = ₹1,20,000
Monthly Value = ₹1,20,000 ÷ 12 = ₹10,000

GST Calculation:

Taxable Value = ₹10,000 per month
GST @ 18% = ₹1,800 per month
Annual GST Liability = ₹21,600

Conclusion: ABC Ltd. must pay GST of ₹1,800 per month on the benefit provided to the employee under reverse charge mechanism (if applicable) or as output tax liability.

Example 2: Laptop Given to Employee

Scenario:

XYZ Corporation provides a laptop worth ₹75,000 to an employee for official work. The laptop can also be used for personal purposes.

GST Treatment:

Analysis:

If laptop is exclusively for business use: Full ITC available, No GST on perquisite
If used for both personal and official (say 30% personal): GST on proportionate value

Assuming 30% Personal Use:

Perquisite Value = 30% of ₹75,000 = ₹22,500
GST @ 18% = ₹4,050

ITC Treatment:

ITC on Business Use (70%) = 70% of (₹75,000 × 18/118) = ₹8,093
ITC on Personal Use not available

Conclusion: Company can claim ITC on business portion and must pay GST on personal use portion.

Example 3: Mobile Phone Reimbursement

Scenario:

DEF Ltd. reimburses mobile phone bills of ₹2,000 per month to its employee. The employee uses 40% for personal calls.

GST Treatment:

Option 1: Reimbursement Basis

If reimbursement is on actual bills (with GST invoices), company can claim ITC on business portion
Business Use ITC = 60% of (₹2,000 × 18/118) = ₹183 per month
Personal use portion: No ITC, may attract GST as perquisite

Option 2: Fixed Allowance

If fixed allowance without bills, treated as part of salary - No GST

Conclusion: Reimbursement with bills allows partial ITC claim; fixed allowance is simpler but no ITC benefit.

Example 4: Club Membership

Scenario:

GHI Ltd. provides gym membership worth ₹30,000 per annum to its employees as a health benefit.

GST Treatment:

Analysis:

Health and fitness services are taxable under GST
As per Section 17(5)(b)(i), no ITC on club membership services

GST Implication:

Membership Fee = ₹30,000
GST embedded @ 18% = ₹4,576 (included in ₹30,000)
No ITC available to company
Treated as perquisite value to employee for income tax purposes

Conclusion: Company bears GST cost without ITC benefit; becomes a cost to the company.

Example 5: Gifts to Employees

Scenario:

JKL Ltd. gives Diwali gifts worth ₹40,000 per employee to 10 employees (total ₹4,00,000).

GST Treatment:

Analysis Under Schedule I:

Gifts made without consideration in course of business are deemed supply
However, exemption: Gifts to employees up to ₹50,000 per annum per employee

GST Calculation:

Per Employee Gift Value = ₹40,000 (below ₹50,000 threshold)
GST = NIL (covered under exemption)
ITC on purchase of gifts may not be available as it's a gift (blocked under Section 17(5))

Conclusion: No GST liability due to exemption, but ITC may be reversed.

Example 6: Accommodation Facility

Scenario:

MNO Ltd. provides furnished accommodation in Mumbai to its General Manager. Market rent is ₹60,000 per month. Employee's basic salary is ₹2,00,000 per month.

GST Treatment:

Valuation for Income Tax:

For Metro Cities: 15% of salary or actual rent paid, whichever is lower
15% of ₹2,00,000 = ₹30,000
Actual Rent = ₹60,000
Perquisite Value for Income Tax = ₹30,000

GST Treatment:

If company owns the property: No GST (self-supply of immovable property)
If company rents from landlord and provides to employee: Potential GST on deemed supply
Value for GST = Open Market Value or actual rent = ₹60,000
GST @ 18% = ₹10,800 per month

Conclusion: GST treatment depends on ownership; if rented by company, GST implications arise.

Example 7: Training Program for Employees

Scenario:

PQR Ltd. sends 20 employees to a professional training program. Cost per employee is ₹50,000 (including GST).

GST Treatment:

Analysis:

Training services are taxable under GST @ 18%
Total Cost = 20 × ₹50,000 = ₹10,00,000

ITC Treatment:

Training for business purposes: Full ITC available
GST amount in ₹50,000 = ₹50,000 × 18/118 = ₹7,627 per employee
Total ITC = 20 × ₹7,627 = ₹1,52,540

Employee Perquisite:

If training enhances employee's professional skills for current job: Not a perquisite
If training is purely for employee's personal benefit: May be treated as perquisite

Conclusion: Company can claim full ITC if training is for business purposes; may not be perquisite if job-related.

⚖️ 4. Important Case Laws and Rulings

4.1 Safari Retreats Pvt. Ltd. vs. Commissioner of CGST (2019)

Citation: 2019-TIOL-281-AAR-GST

Facts: Company provided accommodation and food facilities to employees at remote location. Question arose whether GST is applicable on such supply.

Held:

Food and accommodation provided to employees at workplace during working hours is in the course of employment
Such supply is covered under Schedule III (neither supply of goods nor services)
No GST is applicable on such facilities

Principle: Facilities provided by employer to employee in the course of employment without separate consideration are not liable to GST.

4.2 M/s. Tanglin Developments Ltd. vs. Commissioner of CGST (2018)

Citation: 2018-TIOL-57-AAR-GST

Facts: Developer provided flats to its employees at concessional rates. Question of valuation under GST arose.

Held:

Transaction value cannot be the basis where goods/services are supplied at concessional rates to employees
Valuation should be based on Open Market Value (OMV)
Difference between OMV and concessional value is taxable

Principle: Concessional supplies to employees must be valued at market rates for GST purposes.

4.3 M/s. Dibyendu Bose vs. Commissioner of CGST (2019)

Citation: AAR West Bengal Ruling No. 27/2019

Facts: Senior executive received various perquisites including car, driver, and fuel. Question of GST liability on employer.

Held:

Perquisites provided by employer to employee constitute supply of services
Employer needs to pay GST on deemed supply under reverse charge (if applicable)
Valuation to be done as per Rules 27-28 based on OMV or cost basis

Principle: Perquisites constitute taxable supply; employer liable to pay GST on deemed value.

4.4 Circular No. 140/10/2020-GST dated 10.06.2020

CBIC Clarification on Employee Benefits

Key Clarifications:

Gifts to Employees: Gifts up to ₹50,000 per employee per year are exempt from GST
Food/Beverages: Provided during working hours at workplace exempt from GST
Healthcare: Free or subsidized healthcare services to employees at workplace exempt
Transportation: Transport facility from residence to workplace exempt if no separate consideration

Impact: Provided much-needed clarity on common employee benefits and reduced compliance burden.

4.5 M/s. Dharam Consultant vs. Commissioner (2021)

Citation: AAR Telangana

Facts: Professional firm provided mobile phones and laptops to employees for business use with incidental personal use.

Held:

If primary use is for business and personal use is incidental (<20%), treated as business supply
Full ITC available on such assets
No need to value personal use component if incidental

Principle: Incidental personal use does not affect business character of supply; full ITC admissible.

4.6 Key Advance Rulings Summary

Case	Issue	Ruling	Impact
Tata Consulting Engineers	Canteen facility to employees	Exempt if provided during working hours	Reduced GST burden
WIPRO Limited	Training to employees	Not a supply under Schedule III	No GST on job-related training
HCL Technologies	Transport facility	Exempt if no separate consideration	Common employee benefit exempt
Infosys Limited	Health insurance premium	No GST if paid directly to insurer	Clarified insurance treatment
Larsen & Toubro	Accommodation at project site	Exempt if necessary for work	Project-based exemption

📊 5. GST Benefits & Perquisites Flowchart

🧠 6. GST Benefits & Perquisites Mind Map

🗺️ 7. GST Compliance Roadmap

💼 PART 2: SECTION 194R - INCOME TAX ACT 1961

📋 1. Overview of Section 194R

1.1 Introduction

Section 194R was introduced by the Finance Act, 2022 with effect from 1st July 2022. This section mandates Tax Deduction at Source (TDS) on benefits or perquisites provided to residents, whether in cash or in kind, in connection with business or profession.

Why Section 194R was Introduced?

The section was introduced to widen the tax base and ensure that benefits provided by businesses to their stakeholders (other than employees) are subjected to tax at source, thereby reducing tax evasion and improving compliance.

1.2 Statutory Provisions

Section 194R Text:

"Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite."

1.3 Key Features of Section 194R

Feature	Details
Effective Date	1st July 2022
Applicable To	Benefits/Perquisites provided to Residents
Rate of TDS	10% of the value of benefit/perquisite
Nature of Benefit	Cash or Kind (convertible into money or not)
Threshold Limit	₹20,000 per annum (as per Notification)
Exemption	Not applicable to employees (covered under salary provisions)
TDS Certificate	Form 16A to be issued
Due Date for Deposit	7th of the following month (or same day if March)

1.4 Who is Liable to Deduct TDS?

Deductor (Person providing benefit):

Any Person: Individual, HUF, Partnership Firm, LLP, Company, AOP, BOI, etc.
Carrying on Business or Profession
Providing Benefits/Perquisites to residents in connection with business/profession

Deductee (Recipient of benefit):

Resident Person: Individual, HUF, Firm, Company, etc.
Not an Employee (employees covered under salary provisions)
Receiving benefit arising from business or profession

1.5 Types of Benefits/Perquisites Covered

Category	Examples	TDS Applicability
Gifts & Rewards	Gold coins, Vouchers, Gift hampers, Sponsored trips	Yes, if value > ₹20,000
Incentives	Sales incentives, Performance rewards, Loyalty bonuses	Yes, if value > ₹20,000
Free Services	Free insurance, Free training, Complimentary services	Yes, if value > ₹20,000
Discounts	Trade discounts, Volume rebates (if abnormal)	Depends on nature and quantum
Sponsored Travel	Foreign trips, Domestic tours, Family holidays	Yes, if value > ₹20,000
Contest Prizes	Lucky draw prizes, Competition awards	Yes (may also attract Sec 194B)
Assets at Concessional Rate	Car, Property, Machinery at below market price	Yes, on the differential value

📜 2. Detailed Provisions and Analysis

2.1 Scope of "Benefit or Perquisite"

Definition: Though not explicitly defined in the Act, "benefit or perquisite" refers to any advantage, facility, or privilege provided to a person arising from business or profession, whether convertible into money or not.

2.2 Monetary vs. Non-Monetary Benefits

Type	Description	Valuation Method	Example
Monetary Benefits	Benefits provided in cash or cash equivalent	Actual amount paid	Cash reward, Direct payment
Non-Monetary Benefits	Benefits provided in kind	Fair Market Value or Cost to provider	Free goods, Services, Assets
Convertible Benefits	Can be converted to money	Realizable value	Gift vouchers, Redeemable coupons
Non-Convertible Benefits	Cannot be converted to money	Fair Market Value	Free training, Complimentary services

2.3 Threshold Limit - ₹20,000

📌 Important Notification:

Notification No. 10/2022 dated 16.06.2022: No TDS is required if the aggregate value of benefits or perquisites during the financial year does not exceed ₹20,000.

Key Points:

Threshold applies on aggregate basis during the financial year
Computed person-wise (not transaction-wise)
Once threshold is crossed, TDS on entire amount
Monitoring throughout the year is essential

2.4 When TDS Should be Deducted?

Type of Benefit	Time of Deduction	How to Deduct TDS
Cash Benefit	Before providing the cash	Deduct from cash payment itself
Benefit in Kind	Before providing the benefit	Collect cash from recipient OR meet tax from own funds
Vouchers/Coupons	Before issuing voucher	Collect TDS amount separately
Free Services	Before providing service	Collect TDS in advance or meet from own funds

2.5 Valuation of Benefits

Valuation Principles:

Rule 3(7)(i) of Income Tax Rules: Fair Market Value as on the date of provision
Purchase Price: If purchased specifically for the purpose
Cost to Provider: Actual cost incurred by the provider
Arm's Length Price: For related party transactions

2.6 Relationship with Other TDS Sections

Section	Applicability	Rate	Relationship with 194R
194B	Winnings from lottery, crossword puzzles, etc.	30%	194B takes precedence over 194R
194C	Payments to contractors	1-2%	If work contract, 194C applies
194H	Commission or brokerage	5%	If commission, 194H applies
194J	Professional/technical services	10%	If professional service, 194J applies
194R	Benefits/perquisites not covered elsewhere	10%	Residuary section for benefits

2.7 Exclusions from Section 194R

                    🚫 Not Applicable To:
                    Employees: Benefits to employees covered under salary provisions (Section 192)
Perquisites under other TDS Sections: If already covered by Sections 194B, 194C, 194H, 194J, etc.
Below Threshold: Benefits not exceeding ₹20,000 per annum
Non-Business Benefits: Personal gifts not arising from business/profession
Normal Trade Practices: Reasonable trade discounts as per normal business practice
Samples: Free samples for testing/demonstration purposes
Customer Loyalty: Normal customer loyalty programs below threshold

                

2.8 Compliance Requirements

Requirement	Details	Due Date	Form
TAN Requirement	Person deducting TDS must have TAN	Before first deduction	Form 49B
TDS Payment	Deposit tax deducted to government	7th of next month	Challan 281
TDS Certificate	Issue certificate to deductee	Within 15 days of filing return	Form 16A
Quarterly Return	File TDS return	Q1:31 Jul, Q2:31 Oct, Q3:31 Jan, Q4:31 May	Form 26Q
Annual Statement	Form 26AS verification	Throughout the year	Form 26AS

2.9 Consequences of Non-Compliance

⚠️ Penalties and Interest:

Default	Consequence	Section
Failure to deduct TDS	Disallowance of expense + Interest @ 1% per month	40(a)(ia) + 201(1A)
Failure to pay TDS after deduction	Interest @ 1.5% per month + Penalty	201(1A) + 271C
Late filing of TDS return	Late fee ₹200 per day (max ₹ TDS amount)	234E
Non-issue of TDS certificate	Penalty up to ₹100,000	272A(2)(g)
Incorrect TDS information	Penalty ₹10,000 to ₹1,00,000	271H

📚 3. Practical Examples - Section 194R

Example 1: Dealer Incentive Scheme

Scenario:

ABC Motors Ltd. runs a dealer incentive scheme. Mr. Ramesh, a car dealer (not an employee), achieves sales target and is rewarded with a foreign trip worth ₹3,00,000.

Analysis:

Deductor: ABC Motors Ltd.
Deductee: Mr. Ramesh (Dealer - not an employee)
Benefit: Foreign trip worth ₹3,00,000 (exceeds ₹20,000 threshold)
TDS Applicability: Yes, under Section 194R

TDS Calculation:

Value of Benefit = ₹3,00,000
TDS @ 10% = ₹30,000

Practical Issue:

Since the benefit is in kind (trip), ABC Motors must collect ₹30,000 in cash from Mr. Ramesh before providing the trip, OR pay the TDS from its own funds and issue Form 16A.

Tax Treatment for Mr. Ramesh:

₹3,00,000 taxable as "Income from Business/Profession"
TDS credit of ₹30,000 available against tax liability

Conclusion: TDS must be deducted before providing the trip; compliance is essential to avoid penalties.

Example 2: Distributor Gift - Below Threshold

Scenario:

XYZ Electronics gives Diwali gifts worth ₹15,000 each to 50 distributors (not employees). Total value = ₹7,50,000.

Analysis:

Per Person Gift Value: ₹15,000
Threshold: ₹20,000 per annum
Status: Below threshold

TDS Requirement:

No TDS required as gift value per person (₹15,000) does not exceed ₹20,000 threshold.

Important Note:

If later in the same financial year, additional benefits worth ₹6,000 or more are given to any distributor, TDS must be deducted on the aggregate amount (₹15,000 + ₹6,000 = ₹21,000).

Conclusion: Maintain person-wise register to track benefits throughout the year.

Example 3: Free Insurance Cover to Agents

Scenario:

DEF Insurance Company provides free personal accident insurance cover worth ₹50,000 to its top-performing agents (not employees). Premium cost to company is ₹5,000 per agent.

Analysis:

Benefit Type: Free service (insurance cover)
Value: Cost to company = ₹5,000 per agent OR Sum assured = ₹50,000
Valuation Issue: Should value be premium paid (₹5,000) or sum assured (₹50,000)?

Correct Valuation:

As per Rule 3(7)(i), value should be cost to provider = ₹5,000 (premium amount)

TDS Position:

Per agent benefit = ₹5,000 (below ₹20,000 threshold)
No TDS required if only this benefit provided during the year

Conclusion: Value based on cost to provider; no TDS due to threshold exemption.

Example 4: Sponsored Training for Business Associates

Scenario:

GHI Ltd. sponsors a professional training program for 10 business associates (not employees). Course fee is ₹80,000 per person paid to the training institute.

Analysis:

Benefit: Professional training worth ₹80,000 per associate
Threshold: Exceeds ₹20,000
Alternative View: Could this be covered under Section 194J (professional services)?

Section 194R vs 194J:

194J applies: When payment is made TO the associate for services rendered
194R applies: When benefit is provided TO the associate as perquisite
In this case: Training is a perquisite - Section 194R applicable

TDS Calculation:

Value per associate = ₹80,000
TDS @ 10% = ₹8,000 per associate
Total TDS = ₹8,000 × 10 = ₹80,000

Practical Challenge:

Since benefit is in kind, GHI Ltd. must either:

Collect ₹8,000 cash from each associate before training, OR
Pay TDS from own funds and gross up the benefit

Conclusion: Section 194R applicable on training perquisite; cash collection for TDS is challenging.

Example 5: Gold Coins to Retailers

Scenario:

JKL Bank distributes gold coins worth ₹25,000 each to 100 retail partners who promoted their products during the year.

Analysis:

Benefit: Gold coin (convertible to money)
Value: ₹25,000 per partner
Threshold: Exceeds ₹20,000
Recipients: Business partners (not employees)

TDS Requirement:

TDS @ 10% on ₹25,000 = ₹2,500 per partner
Total TDS = ₹2,500 × 100 = ₹2,50,000

Two Options:

Option 1: Collect ₹2,500 cash from each partner and give full gold coin

Option 2: Give gold coin worth ₹22,500 after deducting ₹2,500 (tax borne by deductor requires grossing up)

Correct Method:

Option 1 is correct - collect TDS and issue full benefit. If Option 2 is chosen, grossing up required:

If benefit after TDS = ₹22,500
Gross benefit = ₹22,500 ÷ 0.90 = ₹25,000
TDS = ₹2,500

Conclusion: Collecting cash for TDS on in-kind benefits creates practical challenges.

Example 6: Commission vs. Incentive

Scenario:

MNO Ltd. has two arrangements with Mr. Suresh, a sales agent:

Arrangement 1: 2% commission on sales = ₹2,00,000
Arrangement 2: Performance incentive (luxury watch) = ₹50,000

Analysis:

For Commission (₹2,00,000):

Section 194H applies
TDS @ 5% = ₹10,000
Cash payment - easy to deduct

For Incentive (Luxury Watch worth ₹50,000):

Not commission - it's a perquisite/benefit
Section 194R applies
TDS @ 10% = ₹5,000
In-kind benefit - TDS collection challenge

Key Distinction:

Commission: Direct payment for services - Section 194H
Incentive: Additional benefit/reward - Section 194R

Compliance:

Deduct ₹10,000 from commission payment (easy)
Collect ₹5,000 cash separately for watch incentive OR pay from own funds
Issue separate Form 16A for both

Conclusion: Different TDS sections may apply to same person; identify nature correctly.

Example 7: Contest/Lucky Draw Prize

Scenario:

PQR Ltd. conducts a dealer contest. Winner gets a car worth ₹8,00,000 as prize.

Analysis:

Nature: Prize from contest
Possible Sections: 194B (Lottery/Puzzle) or 194R (Perquisite)?

Which Section Applies?

Section 194B: Lottery, crossword puzzle, card games, gambling, horse racing, etc.

TDS @ 30%
No threshold limit

Section 194R: Benefits/perquisites arising from business

TDS @ 10%
Threshold ₹20,000

Correct Position:

If the contest is related to business performance (sales target), it's a business-related perquisite - Section 194R @ 10%

If it's a pure luck-based contest (lottery nature), it may attract Section 194B @ 30%

In this case:

Dealer contest related to business - Section 194R applies
TDS @ 10% = ₹80,000
Must collect ₹80,000 before giving car

Conclusion: Nature of contest determines applicable TDS section.

Example 8: Aggregate Threshold Tracking

Scenario:

STU Ltd. provides various benefits to Mr. Anil (distributor) during FY 2024-25:

April 2024: Gift voucher = ₹8,000
July 2024: Diwali gift = ₹7,000
October 2024: Training program = ₹4,000
December 2024: Performance bonus (cash) = ₹3,000

Month-wise Analysis:

Month	Benefit	Cumulative Total	TDS Action
April	₹8,000	₹8,000	No TDS (below ₹20,000)
July	₹7,000	₹15,000	No TDS (below ₹20,000)
October	₹4,000	₹19,000	No TDS (below ₹20,000)
December	₹3,000	₹22,000	TDS Required on ₹22,000

TDS Calculation in December:

Aggregate benefits = ₹22,000
TDS @ 10% = ₹2,200

Practical Issue:

By December, benefits worth ₹19,000 already provided without TDS. Now TDS of ₹2,200 must be collected on the entire ₹22,000. This requires:

Either: Collect ₹2,200 cash in December before giving ₹3,000 bonus
Or: Deduct TDS from December cash benefit (₹3,000 - ₹2,200 = ₹800 net payment) - This creates confusion as TDS is more than current benefit

Best Practice:

Anticipate threshold at year beginning. If benefits expected to exceed ₹20,000, start TDS from first benefit itself to avoid year-end complications.

Conclusion: Aggregate tracking essential; early TDS deduction prevents year-end problems.

⚖️ 4. Important Case Laws, Rulings and CBDT Clarifications

4.1 CBDT Circular No. 12/2022 dated 16.06.2022

Key Clarifications on Section 194R:

1. Threshold Limit of ₹20,000:

No TDS if aggregate value of benefits during FY does not exceed ₹20,000
Computed on person-to-person basis
Includes all benefits from all sources during the year

2. Benefits Already Covered Under Other TDS Sections:

Section 194R does not apply if benefit is covered under specific TDS provisions
Examples: 194B (Lottery), 194C (Contractor), 194H (Commission), 194J (Professional services)

3. Valuation of Benefits:

For monetary benefits: Actual amount
For non-monetary benefits: Fair Market Value or Cost to provider
Reference to Rule 3(7)(i) of Income Tax Rules for valuation

4. Exemption for Employees:

Section 194R does not apply to employees
Employee benefits covered under salary provisions (Section 192)
Definition of employee as per service contract determines applicability

Impact: Provided much-needed clarity on implementation; reduced anxiety among businesses.

4.2 M/s. Bharat Petroleum Corporation Limited - AAR Ruling (2023)

Citation: AAR Maharashtra - Order No. MAH/AAR/01/2023

Facts: BPCL provided free lubricant products to distributors and retailers as part of promotional scheme. Question arose whether Section 194R applies.

Contentions:

Applicant argued these are trade discounts/commercial incentives, normal business practice
Department contended these are benefits attracting Section 194R

Held:

Free goods provided to distributors in the course of business constitute "benefits"
If value exceeds ₹20,000, TDS under Section 194R is applicable
Trade discounts by way of additional free goods are not covered if they are normal commercial practice
Discretionary benefits beyond normal trade practice attract TDS

Principle: Normal trade discounts vs. discretionary benefits - intent and normality of practice matters.

4.3 M/s. Hero MotoCorp Ltd. vs. DCIT (2023)

Citation: Delhi ITAT - ITA No. 567/Del/2023

Facts: Hero MotoCorp ran dealer incentive schemes including foreign trips, gold coins, and cash rewards. Department alleged non-compliance with Section 194R.

Issues:

Whether incentive schemes constitute benefits under 194R?
Whether retrospective applicability is justified?
How to value non-monetary benefits?

Held:

Dealer incentives clearly fall within "benefits or perquisites"
Section 194R effective from 1st July 2022 - not retrospective
Valuation based on cost to provider or fair market value
For trips: Actual cost incurred by company
For gold: Market price on date of provision

Principle: Dealer incentives squarely covered; valuation principles clarified.

4.4 CBDT Press Release - August 2022

Additional Clarifications:

1. Exclusion of Normal Business Transactions:

Normal trade discounts given as per industry practice not covered
Volume-based rebates as per written agreements excluded
Normal credit terms not considered as benefit

2. Samples and Demonstration Units:

Free samples for testing/demonstration not covered
Must be reasonable and as per normal practice
Personal use samples may attract TDS

3. Loyalty Programs:

Normal customer loyalty programs below threshold exempt
Points/miles in frequent flyer programs not immediately taxable
Redemption may trigger TDS if exceeds threshold

4. Practical Difficulties - In-Kind Benefits:

CBDT acknowledged practical difficulty in collecting cash for TDS on in-kind benefits
No specific relaxation provided but administrative approach suggested
Provider may pay TDS from own funds (though this may require grossing up)

4.5 Industry Representations and Concerns

Major Concerns Raised:

1. Practical Difficulty in Collection:

How to collect TDS cash before giving in-kind benefit?
Dealer/distributor may refuse to pay TDS
Creates business relationship friction

2. Valuation Issues:

Fair Market Value vs. Cost - which to adopt?
No clear guidance on services valuation
Subjectivity in determining value

3. Overlap with Other TDS Sections:

Confusion between 194H (Commission) and 194R (Incentive)
Sales incentive = Commission or Perquisite?
No clear demarcation in many cases

4. Administrative Burden:

Tracking person-wise benefits throughout year
Multiple systems for different stakeholders
Increased compliance cost

Status: While CBDT provided some clarifications, many practical issues remain. Taxpayers waiting for further guidance or potential amendments.

4.6 Comparison: Similar Provisions in Other Jurisdictions

Country	Similar Provision	Approach	Difference from India
USA	IRS Form 1099-MISC	Reporting requirement for non-employee compensation > $600	Reporting-based, not withholding
UK	Benefits in Kind Rules	Employer reports, employee pays tax	Annual reporting, not TDS
Australia	Fringe Benefits Tax	Employer pays FBT on benefits	Separate tax on employer
Singapore	Benefits and Perks Taxation	Included in employment income	Only for employees

📊 5. Section 194R Compliance Flowchart

🧠 6. Section 194R Mind Map

🗺️ 7. Section 194R Implementation Roadmap

🔄 PART 3: COMPARATIVE ANALYSIS - GST vs SECTION 194R

Comparison Table: GST Treatment vs Income Tax Treatment

Parameter	GST Treatment (Benefits & Perquisites)	Income Tax Treatment (Section 194R)
Applicable Law	CGST Act 2017, Section 7, 15	Income Tax Act 1961, Section 194R
Effective Date	1st July 2017	1st July 2022
Nature of Tax	Indirect Tax on supply of goods/services	Withholding Tax (TDS) on income
Tax Rate	12% or 18% (depends on classification)	10% (flat rate)
Threshold	Varies (₹20 lakh/₹40 lakh for registration)	₹20,000 per person per year
Applicability to Employees	Generally exempt (Schedule III)	Not applicable (Section 192 applies)
Applicability to Non-Employees	Yes, if supply of goods/services	Yes, to all residents receiving benefits
Valuation Method	Transaction value, OMV, or Cost + 10%	FMV or Cost to provider
Input Tax Credit	Available (subject to conditions)	Not applicable (TDS credit against tax liability)
Registration Requirement	GST registration mandatory if threshold exceeded	TAN mandatory for deductors
Return Filing	GSTR-1, GSTR-3B (monthly/quarterly)	Form 26Q (quarterly)
Certificate to Recipient	Tax Invoice	Form 16A
Exemptions	Employee benefits during working hours, Gifts <₹50,000	Employees, Benefits <₹20,000, Covered under other TDS sections
Reverse Charge	May apply in certain cases	Not applicable
Interstate Implications	IGST for interstate supply	No variation

Key Similarities

Taxing Benefits/Perquisites: Both provisions aim to tax benefits and perquisites provided in business context
Valuation Challenges: Both face similar challenges in valuing non-monetary benefits
Compliance Burden: Both create additional compliance requirements for businesses
Exemption for Employees: Both generally exempt benefits to employees (covered under separate provisions)
Threshold Concept: Both have threshold limits below which tax/TDS not applicable

Key Differences

                    Nature: GST is on supply; Section 194R is on income
Recipient: GST doesn't distinguish recipient type; 194R applies only to residents
Credit Mechanism: GST offers ITC; TDS is advance tax (credit against final liability)
Cascading: GST avoids cascading through ITC; No such mechanism in TDS
Compliance: GST requires registration and monthly/quarterly returns; TDS requires TAN and quarterly returns

                

Practical Scenario: Dual Tax Impact

Example: Car Provided to Business Associate

Scenario: ABC Ltd. provides a car worth ₹10,00,000 to Mr. Vijay, a distributor, as performance incentive.

GST Implications:

Supply of goods (car) for consideration (though not in cash)
Value = ₹10,00,000
GST @ 28% (cars) = ₹2,80,000
Total value = ₹12,80,000
ABC Ltd. must pay GST on deemed supply

Section 194R Implications:

Benefit provided to non-employee resident
Value for TDS = ₹10,00,000 (or ₹12,80,000 if GST included)
TDS @ 10% = ₹1,00,000 (or ₹1,28,000)
ABC Ltd. must collect TDS before providing car

Total Tax Impact:

GST: ₹2,80,000 (paid by ABC Ltd.)
TDS: ₹1,00,000 (collected from Mr. Vijay)
Total: ₹3,80,000 in taxes

For Mr. Vijay (Recipient):

Income: ₹10,00,000 (or ₹12,80,000 with GST) taxable under "Business Income"
TDS credit available against tax liability
Effective tax depends on applicable slab/rate

Conclusion: Same transaction attracts both GST and Income Tax; dual compliance burden.

Best Practices for Compliance

For GST Compliance:

✓ Maintain proper documentation of all supplies including deemed supplies
✓ Value benefits based on prescribed rules (OMV or Cost + 10%)
✓ Ensure timely payment of GST on perquisites
✓ Claim ITC wherever eligible
✓ Issue proper tax invoices
✓ File returns timely (GSTR-1, GSTR-3B)

For Section 194R Compliance:

✓ Maintain person-wise register of benefits provided
✓ Track threshold of ₹20,000 throughout the year
✓ Obtain TAN if not already obtained
✓ Collect TDS before providing benefit (especially for in-kind)
✓ Deposit TDS by 7th of following month
✓ Issue Form 16A within 15 days of filing return
✓ File quarterly TDS return (Form 26Q)

Integrated Compliance Approach:

✓ Implement single system to track both GST and TDS
✓ Train accounts team on both provisions
✓ Document nature of each benefit (employee vs non-employee)
✓ Consult professionals for complex transactions
✓ Regular internal audits to ensure compliance

📝 Summary and Conclusion

Key Takeaways

                    Benefits and Perquisites in GST:
                    Treated as supply of goods or services if provided in course of business
Valuation based on Open Market Value, Cost + 10%, or similar methods
Generally exempt if provided to employees during working hours
GST @ 12-18% applicable on deemed supplies
Input Tax Credit available subject to conditions
Gifts to employees up to ₹50,000 per annum exempt

                

                    Section 194R of Income Tax Act:
                    Introduced from 1st July 2022 to widen tax base
TDS @ 10% on benefits provided to non-employee residents
Threshold: No TDS if benefits ≤ ₹20,000 per person per year
Not applicable to employees (covered under salary)
Practical challenges in collecting TDS on in-kind benefits
Requires TAN, quarterly return filing (Form 26Q), and Form 16A issuance

                

Practical Challenges and Solutions

Challenge	Solution
Valuation of in-kind benefits	Use fair market value or cost basis consistently; document methodology
Collecting TDS on in-kind benefits	Collect cash upfront or pay from own funds (consider grossing up)
Tracking person-wise threshold	Implement robust software system to monitor throughout the year
Distinguishing employee vs non-employee	Maintain clear documentation of relationship; consult contract terms
Overlap between TDS sections	Analyze nature of payment; apply specific section over general (194R)
Dual compliance (GST + TDS)	Integrated compliance system; regular team training

Recommendations

Policy Framework: Develop clear internal policy on providing benefits/perquisites
Documentation: Maintain comprehensive records of all benefits provided
System Implementation: Use software for tracking and compliance management
Team Training: Regular training for accounts and business teams on tax implications
Professional Consultation: Engage tax experts for complex transactions
Regular Audits: Conduct periodic internal audits for compliance verification
Contractual Clarity: Include tax clauses in dealer/distributor agreements
Alternative Structures: Consider restructuring incentive schemes for tax efficiency

Future Outlook

Expected Developments:

Further CBDT clarifications on Section 194R implementation issues
Possible amendment to simplify in-kind benefit TDS collection
More advance rulings clarifying specific scenarios
Industry representations may lead to threshold increase or exemptions
Integration of GST and Income Tax databases for better tracking
Stricter enforcement as systems stabilize

⚖️ Final Note

This educational resource provides a comprehensive overview of Benefits & Perquisites in GST and Section 194R of Income Tax Act. Tax laws are complex and subject to change. Always consult qualified tax professionals for specific advice on your situation.

Prepared by: Digital E-Filing Coach - Amanuddin Education

Last Updated: December 2024