Part 194R of the Revenue Tax Act, 1961, which makes it essential to deduct 10 per cent tax at supply on the worth of any profit or perquisite acquired by a resident Indian, was launched by the federal government to widen the tax base and cut back tax evasion within the nation. Specialists, nonetheless, have flagged a number of problems round it.
“The brink prescribed underneath part 194R doesn’t sync with threshold prescribed underneath part 56,” mentioned Amrita Bhatnagar, Affiliate Director, at RBSA Advisors.
Underneath part 56, if the receipt of advantages by a person or a Hindu Undivided Household (HUF) exceeds Rs 50,000 in a yr, they’re liable to pay a tax on it. Nevertheless, underneath part 194R, the restrict is Rs 20,000.
“On the very occasion, this might result in tax outflow which is definitely exempt within the palms of the recipient,” she added.
The part is not going to apply if the worth of “profit” or “perquisite” offered is lower than 20,000. “The time period ‘profit’ or ‘perquisite’ will not be outlined within the Act,” Akhil Chandna, accomplice, Grant Thornton Bharat, instructed Enterprise Customary.
The federal government had earlier acknowledged that the receipt could also be in money or form, however no clear definition was offered.
Specialists additionally identified that this might result in further administrative challenges.
Chandna mentioned, “The part additionally covers sure companies or merchandise which are typically offered to the recipient of products or companies as part of frequent commerce parlance.”
This consists of freight being paid on behalf of the receiving celebration and funds made for administrative comfort. “It will result in pointless complexities and unwarranted litigation,” he added.
Bhatnagar additional identified that the supplier of the profit should make sure that the tax required to be deducted has been paid earlier than releasing the profit. “It will moreover impose administrative difficulties on the supplier of the profit,” she added.
Valuation of “advantages in form” could possibly be difficult, and general provisions would make compliances extra cumbersome, they additional mentioned.
Nevertheless, if each sections 56 and 194R apply to a recipient, specialists instructed that attributable to an absence of clear pointers, they need to pay the upper tax and declare the refund later via the revenue tax return (ITR).
“If an organization deducts tax, it will likely be to the credit score of the recipient,” Bhatnagar mentioned, “If it isn’t adjusted, then the recipient can declare the refund later.”