New Delhi, June 16 | Updated on: Jun 16, 2022

This is part of the guidelines for the implementation of the new section (194R) in the Income Tax Act, which will come into effect on July 1.

Social media influencers will now be liable for Tax Deducted at Source (TDS) if they retain goods such as cars, mobile handsets etc., Similarly, doctors will also be charged tax for free samples of medicine or gifts received from pharmaceutical companies.

This is part of the guidelines for the implementation of the new section (194R) in the Income Tax Act, which will come into effect on July 1. The section prescribes TDS “by a 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.” TDS will be applicable if the value of perquisites or benefits exceeds ₹20,000 in a year.

According to a circular by CBDT, issued on Thursday, if a social media influencer returns a product such as car, mobile, outfit, cosmetics, etc., to the manufacturing company after using it for the purpose of rendering service, then it will not be treated as a benefit or perquisite for the purposes of section 194R of the Act. However; “if the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act,” the circular said.

CBDT’s clarification

With regard to doctors, CBDT clarified that if they receive free samples of medicines while employed in a hospital, Section 194R would apply to the distribution of free samples to the hospital. The hospital, as an employer, may treat such samples as taxable perquisites for employees and deduct tax. In such cases, the threshold of ₹20,000 has to be seen with respect to the hospital. Hospitals will claim exemption while doctors will pay tax as value will be added in his/her salary.

The tax department provided a breather on sales discounts, cash discounts, and rebates allowed to customers by excluding them from the purview of the new section as their inclusion would put the seller into difficulties. However, incentives other than sales discounts, dash discounts, and rebates will be covered. Also, incentives which are in cash or kind, e.g., cars, TVs, computers, gold coins, mobile phones, sponsored trips, free tickets, and medicine samples to medical practitioners. It is noteworthy that the list provided by the CBDT is not exhaustive but only illustrative.

Sudin Sabnis, Partner with Nangia Andersen LLP, said that the guidelines have been issued on time considering the section is effective from July 1 and seeks to provide clarity on multiple fronts. It is apparent that taxpayers would need to gear up their systems and tracking mechanisms for various routine transactions to identify and withhold tax on such benefits and perquisites. “Certain aspects, particularly the applicability of withholding tax on reimbursement of OPE (out of pocket expenses), benefits provided in cases of recipients not engaged in business or profession, etc., could open up a host of practical issues which taxpayers should brace themselves with,” he said.

Yeeshu Sehgal, Head of Tax Markets, AKM Global, feels these guidelines could prove effective in preventing tax leakages as they have tried to take into their sweep a wide and diversified nature of transactions, which are difficult to envisage. “Every benefit given in kind or partly in cash and or in the form of capital assets is also covered, hence it is all-encompassing. The manner of valuation of such benefits or perquisites has been clarified which will help to calculate the tax deduction amount,” he said.

Published on June 16, 2022