The tax division has persistently sought to disallow bills incurred by a taxpayer in direction of presents offered to enterprise associates.
By Neeraj Agarwala
Tax Deducted at Source (TDS) on consideration paid in variety has been a topic of litigation. The tax division has persistently sought to disallow bills incurred by a taxpayer in direction of presents offered to enterprise associates. It alleged these presents are in lieu {of professional} charges, paid in variety, and subsequently the taxpayer ought to have deducted and deposited TDS below Sections 194J /194C of the Income Tax Act. However, numerous courts have held in any other case and noticed that non-monetary issues will not be coated below Sections 194J/ 194C.
It is pertinent to observe that these non-monetary issues are and would proceed to be taxable within the fingers of the recipient. What was debated was whether or not the TDS provisions cowl non-monetary issues. Thus to widen the tax base and guarantee compliances by such recipients, a brand new part, 194R, is proposed to be inserted vide Finance Bill, 2022. Let’s check out the proposed modification:
From whom will TDS be deducted?
Under Section 194R, it’s proposed that TDS is to be deducted from a resident, who has obtained any perquisite or profit arising from enterprise or the train of a career. What we observe right here is that residence-based taxation has been utilized by the ministry. That is, the place of receiving the profit or perquisite might be in India or exterior India however so long as the recipient is a resident in India, TDS might be relevant.
Who is liable to deposit TDS?
The legal responsibility to deduct and deposit taxes has been positioned on any individual (resident or non-resident) offering profit or perquisites to a resident. As per the proviso to part, in a case the place the profit offered is wholly in variety or partly in money and partly in variety, however the half in money will not be ample to meet the TDS legal responsibility, then the individual accountable for offering such profit shall earlier than releasing the profit, make sure that tax is paid in respect of such profit. That means if the individual receiving the profit discharges the tax legal responsibility on such profit by means of advance tax, the payer would not be required to deposit any additional taxes and may freely launch the profit.
What is a ‘profit or perquisite’?
The time period ‘perquisite’ is at the moment outlined below Section 17 which incorporates numerous financial and non-monetary emoluments. Section 194R doesn’t outline ‘perquisite’ however states that TDS might be relevant regardless of whether or not such issues are convertible into cash or not. Without a correct definition of the time period ‘perquisite’ or ‘profit’, what constitutes a perquisite or profit would lead to tax litigations. For instance, whether or not free provides would represent a profit or not and whether or not TDS can be required on such worth stays to be seen.
How a lot TDS is to be deposited?
TDS is required to be deposited on the charge of 10% of the worth or mixture of the worth of such profit or perquisite. However, the query of how to worth the profit or perquisite stays open to dispute.
In social media advertising and marketing, there are various influencers that present advertising and marketing providers for collaboration. Under the provisions of the proposed Section 194R, TDS will now be required to be deducted and deposited by the businesses giving their products free to these influencers. With the introduction of Section 194R, whether or not the style through which these influencers obtain consideration change or not, we’ll want to wait and see.
The author is associate, Nangia Andersen LLP, Inputs from Neetu Brahma
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https://www.financialexpress.com/cash/income-tax/tax-talk-clarity-needed-on-tds-for-products-given-for-free-to-social-media-influencers/2434994/
