Bharat SainiLast Updated on June 26, 2022 by Bharat Saini
On July 1, 2022, the income tax department will introduce new TDS guidelines (new TDS rule) with benefits. The central board of direct taxes (CBDT) will require the taxpayer to check the taxability of sums before making any deductions. Under the new provisions, the provider of the benefit can also deduct tax directly from the recipient under Section 194R.
In the meantime, the new tax rules will have a positive impact on wholesale dealers and micro-influencers.
Tax on perks and perquisites
The new TDS provision will come into force on 1 July 2022. According to the Income Tax department, individuals who issue more than Rs 20,000 worth of perks and perquisites should deduct tax from them. The tax will be deducted at source. Moreover, the benefit provider has the option to deduct tax on behalf of its employees under Section 194R.
The benefits provided by an entity are taxable if they are used by the owner, director, or an employee of the entity. It is not taxable if the recipient does not incur expenses for the benefit of the beneficiary. However, if the benefit is given to a person who is not carrying on business or exercising profession, the tax is liable to be deducted.
Exemptions from Section 194R
Under the TDS Rule, incentives in kind or cash are excluded from taxation. The CBDT has clarified that rebates, sales discounts and other benefits do not qualify as incentives. Moreover, a seller cannot claim a deduction for the benefits he has received from a customer. However, a seller can claim an exemption if the incentive was given in kind or cash.
In the Finance Act 2021, the government made the deductors responsible for tax collection. It introduced a new alphabet set called Section 206AB, which requires the deductor to deduct tax at twice the rate applicable to the benefit. Section 194C, on the other hand, requires the deductor to deduct 5% of taxable value. These provisions were made to ensure that more tax money is collected by the government.
Impact on micro-influencers
The new tax rules are expected to have a negative impact on micro-influencers. These content creators rely on barter deals to build relationships with brands. Most influencers in the tech space receive free gadget review units from companies and keep them forever. Under the new tax rules, brands must track these barter deals. Influencers may also feel wary of partnerships because of the ambiguity.
Previously, the barter system was a fair practice, as it gave start-ups a way to spread their products. But thanks to the new TDS rule, influencers may no longer be able to afford this type of collaboration. Now, most collaborations are barter only. This new rule may be bad for both brands and influencers. As a result, brands may become more selective about forming relationships with micro-influencers.
Impact on wholesale dealers
The Income Tax Department has issued new guidelines regarding TDS. This new rule will come into effect on July 1, 2018. It is not only applicable to wholesale dealers, but also to doctors, social media influencers, and other businesses that offer freebies. In this new rule, 10 percent TDS must be deducted on the amount of freebies received. Perquisites are defined by the Central Board of Direct Taxes as “gifts of goods or services” in kind or cash. Benefits include cash, discounts, and other similar incentives.
TDS applies to anyone who provides benefit to another Resident. That means that any company that offers something at a lower price will have to deduct tax from that benefit. The law also defines “real income” as “any benefit received on a transaction.”
Impact on customers
The new TDS rules will be applicable from July 1, 2022. This will change the way that you make your payments and how you calculate your TDS. These new rules will apply to both businesses and individuals providing a benefit to another Resident. These rules will also apply to bonuses, prizes, and sales incentives. While you can still offer sales incentives to customers, it will be more difficult to give them benefits that are tax-free.
The new TDS rule will affect all individuals that issue more than Rs 20,000 in goods or services. The Finance Ministry has introduced the new rule in the Budget 2022-23 to limit the leakage of tax revenues. According to Kamlesh C Varshney, Joint Secretary of Finance, the new provision will be effective July 1, 2022. It will require those who issue 20,000 or more to deduct 10 per cent of the value of these benefits from the value of the products or services they provide.
