Section 194R of the Income Tax Act, 1961, which makes it necessary to deduct 10 per cent tax at source on the value of any benefit or perquisite received by a resident Indian, was introduced by the government to widen the tax base and reduce tax evasion in the country. Experts, however, have flagged several complications around it."The threshold prescribed under section 194R does not sync with threshold prescribed under section 56," said Ravi Mehta, Managing Director and Head (Transaction Tax), and Amrita Bhatnagar, Associate Director, at RBSA Advisors.
Under section 56, if the receipt of benefits by an individual or a Hindu Undivided Family (HUF) exceeds Rs 50,000 in a year, they are liable to pay a tax on it. However, under section 194R, the limit is Rs 20,000.
"At the very instance, this would lead to tax outflow which is actually exempt in the hands of the recipient," they added.The section will not apply if the value of "benefit" or "perquisite" provided is less than 20,000. "The term 'benefit' or 'perquisite' is not defined in the Act," Akhil Chandna, partner, Grant Thornton Bharat, told Business Standard.The government had earlier stated that the receipt may be in cash or kind, but no clear definition was provided.
