Changes in the rules related to Tax Deducted at Source (TDS) have come into effect from today. The Central Board of Direct Taxes (CBDT) had released guidelines last month informing about these changes. Most significant among them is the levy of TDS on free samples received by social media influencers and doctors.
The Union Budget had brought in the provision of TDS on such income to check tax revenue leakage by inserting a new section, 194R, in the Income Tax Act, 1961.
It requires TDS at 10 per cent for any person providing benefit exceeding Rs 20,000 in a year to a resident.
What comes under benefits and perquisite?
Kamlesh C Varshney, Joint Secretary in the Finance Ministry, had explained the benefits, which he said include free medicine samples received by doctors, foreign flight tickets or free Indian premier League (IPL) tickets in the course of business and more.
Mr Varshney had further emphasised that these should be disclosed while filing the income tax return, adding that it shouldn’t be avoided based on the fact these items are not being sold.
Section 194R will also apply to seller giving incentives, other than discount or rebate, which are in cash or kind, like car, TV, computers, gold coins and mobile phones.
What if a doctor is working at a hospital?
In its June 16 circular, CBDT clarified that in case of doctors receiving free samples of medicines during his/her employment in a hospital, Section 194R would apply on distribution of free samples to the hospital. The hospital as an employer may treat such samples as taxable perquisite for employees and deduct tax under Section 192. In such cases, the threshold of Rs 20,000 has to be seen with respect to the hospital.
For doctors working as consultants with a hospital and receiving free samples, TDS would ideally apply on hospital first, which in turn would require to deduct tax under Section 194R with regard to consultant doctors.
What are the exemptions?
Section 194R will not apply if the benefit or perquisite is provided to a government entity, like government hospital, not carrying on business or profession, according to CBDT circular. Discounts and rebates offered by sellers on the maximum retail price (MRP) have also been excluded.
The CBDT said that inclusion of these rebates and discounts would put the seller into difficulties.
Further, if benefits like mobile phones are returned to the manufacturing company after using for the purpose of rendering service (in case of social media influencers), it will not come under the purview of the new provision.