By Nitesh Buddhadev
Finance Act 2022 inserted a new section 194R in the Income-tax Act, 1961 with effect from 1st July 2022. The new section mandates a person providing any benefit or perquisite to another person for their business/profession, to deduct tax at source @ 10% of the aggregate of value of such benefit or perquisite. The benefit or perquisite may be in cash or kind. In case, the aggregate value of benefit is less than Rs. 20,000, TDS is not applicable under this section. The CBDT has issued circular no. 12 of 2022 dated 16th June 2022 and clarified certain situations on the applicability of this section.
Social media influencers are now a days playing an important role in any Company’s marketing strategy. An interesting question that arises on the introduction of this section is should TDS be deducted on the product given to a social media influencer for promotion of the product on social media.
For example, Social media influencer Rohini receives a mobile phone worth Rs. 1,18,000 (mobile phone 1 lakh plus GST 18,000) from Company X, Car worth Rs. 15 lakh from Company Y and Cosmetics worth Rs. 15,000 from Company Z. Rohini charges fees of Rs. 15,000 to Company X, Y, Z each. Now, Rohini promotes all these products and retains the mobile phone and cosmetics with her. She returns the car to Company Y after the promotion.
Since Rohini has not returned the products to Company X and Z, it would be considered as benefit or perquisite provided for the purpose of business/profession. Company X shall deduct TDS under Section 194R on the value of the mobile phone excluding GST. TDS liability would be Rs. 10,000 which shall be retained from the fees payable to Rohini. For Company Z, the value of benefit provided does not exceed Rs. 20,000 and hence no TDS liability would arise to Company Z. For Company Y, the car is returned by Rohini hence, there is no benefit which is provided to Rohini over and above the fees charged by her and hence no requirement to deduct TDS.
Suppose, Rohini does one more product promotion for Company Z and thus again receives products worth Rs. 10,000 from Company Z. Now, the aggregate value of benefits provided by Company Z to Rohini is Rs. 25,000 and thus TDS of Rs. 2,500 will have to be deducted under Section 194R by Company Z from the fees payable to Rohini.
Now, Rohini receives an offer for a product promotion from Company A from another city. She charged fees of Rs. 50,000 to Company A. Rohini does the product promotion and returns the product to Company A and believes that no TDS shall be deducted. She incurred travel expenditure of Rs. 35,000 which is reimbursed by Company A.
Normally, the fee received by the influencer is their income and the expenditure incurred on travel is their expenditure deductible from such income in computing their total income. Now if this travel expenditure is met by the Company A, it is benefit or perquisite provided by Company A to the influencer and hence TDS is to be deducted under Section 194R. Hence, TDS of Rs. 3,500 shall be deducted from the fees payable to Rohini.
However, if the original invoice for the travel expense is obtained in Company A’s name then the service recipient would be considered as Company A and Rohini would only pay the expense on behalf of the Company and later get it reimbursed by the Company. This transaction where the invoice is in the name of Company A would not be considered as benefit or perquisite for Rohini and no TDS liability would arise for Company A under Section 194R.
(The author is a Chartered Accountant and founder of Nimit Consultancy)