The TDS (Tax Deducted at Source) rate for gifts and perquisites provided by businesses or professionals, when their monetary worth exceeds INR 20,000 for a recipient within a financial year, is 10%.
Understanding TDS on Gifts and Perquisites under Section 194R
While personal gifts exchanged between individuals generally do not attract TDS, specific provisions apply to benefits or perquisites, including gifts, provided in a business or professional context. These provisions are primarily governed by Section 194R of the Income Tax Act, 1961, which aims to bring such benefits into the tax net.
Key Aspects of TDS under Section 194R:
- Who Deducts TDS? Businesses and professionals who provide benefits or perquisites.
- Nature of Benefit: This includes both monetary and non-monetary gifts or perquisites arising from business or the exercise of a profession. The "gift" must have a calculable monetary worth.
- Applicable Threshold: TDS is to be deducted if the aggregate monetary worth of such benefits or perquisites provided to a single recipient during a financial year exceeds INR 20,000.
- TDS Rate: The prescribed TDS rate is 10% on the value of the benefit or perquisite.
- Timing of Deduction: The tax must be deducted before providing the benefit to the recipient.
Practical Insight:
Consider a company that gives a valuable gift voucher worth INR 25,000 to one of its distributors as an incentive for achieving sales targets. Since the monetary worth of this gift (INR 25,000) exceeds the INR 20,000 threshold, the company, being a business, is required to deduct TDS at 10% on the entire amount. This means INR 2,500 would be deducted, and the distributor would receive a gift voucher worth INR 22,500, along with a TDS certificate.
Summarizing TDS on Gifts and Perquisites
To provide a clearer picture, here's a summary of the TDS provisions for gifts and perquisites:
| Aspect | Details |
|---|---|
| Applicable Section | Section 194R of the Income Tax Act, 1961 |
| Deductor | Any person responsible for providing any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession (i.e., businesses and professionals). |
| Nature of Benefit | Gifts, incentives, sponsorships, free samples, tickets, foreign trips, etc., which have a monetary worth. |
| Threshold Value | Monetary worth exceeding INR 20,000 for each recipient in a financial year. |
| TDS Rate | 10% of the value of the benefit or perquisite. |
It's crucial for businesses and professionals to accurately assess the value of such benefits and ensure compliance with TDS regulations to avoid penalties. For more detailed guidance on TDS provisions, you can refer to official Income Tax Department guidelines.
