Circular No. 18/2022

Additional guidelines for removal of difficulties under sub section 2 of section 194R of the income tax act 1961

What this is

Circular No. 18/2022 was issued by the Central Board of Direct Taxes on 13 September 2022. Its subject is Additional guidelines for removal of difficulties under sub section 2 of section 194R of the income tax act 1961.

These are guidelines issued under a power in the section itself. Where a section says the Board may issue guidelines and that they bind, the guidelines carry more weight than an ordinary circular — read the enabling words before deciding which kind this is.

What it does

A second round of guidelines under section 194R(2), following the first set in Circular No. 12/2022 dated 16 June 2022. The extract sets out the ground it works on: section 194R, inserted by the Finance Act, 2022 with effect from 1 July 2022, requires a person providing any benefit or perquisite to a resident to deduct tax at 10 per cent of its value, or aggregate value, before providing it, whether or not the benefit is convertible into money, so long as it arises from the resident's business or profession. No deduction is called for where the value, or aggregate value, provided or likely to be provided to that resident in the financial year does not exceed Rs. 20,000. An individual or Hindu undivided family deductor is outside the section altogether if turnover or gross receipts from business did not exceed Rs. 1 crore, or from profession Rs. 50 lakh, in the immediately preceding financial year. Guidelines issued under sub-section (2) are laid before each House of Parliament and bind both the income-tax authorities and the person providing the benefit.

Why it was issued

After the first set of guidelines went out in June 2022, stakeholders asked for clarification on further issues, and the Board issued this circular under the same power to remove those difficulties.

Who it reaches

Businesses and professionals giving benefits or perquisites to resident dealers, distributors, doctors or influencers
Individual and Hindu undivided family deductors near the Rs. 1 crore and Rs. 50 lakh turnover tests
Recipients of benefits in kind, who face the deduction before the benefit reaches them
Deductors who had already applied Circular No. 12/2022 from 1 July 2022

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.194R	s.393, s.400, s.402

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it. The reading also stopped short of the end of the document: what is below is the opening, not the whole of it.

F.No. 370142/27/2022-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division)
*****
Circular No 18 of 2022
New Delhi, Dated 13th September, 2022
Sub: Additional Guidelines for removal of difficulties under sub-section (2) of section
194R of the Income-tax Act, 1961
Finance Act 2022 inserted a new section 194R in the Income-tax Act, 1961 (hereinafter
referred to as "the Act") with effect from 1 st July 2022.
2. The new section mandates a person, who is responsible for providing any benefit or
perquisite to a resident, to deduct tax at source @ 1 0% of the value or aggregate of value of
such benefit or perquisite, before providing such benefit or perquisite. The benefit or
perquisite mayor may not be convertible into money but should arise either from carrying
out of business, or from exercising a profession, by such resident.
3. This deduction is not required to be made, if the value or aggregate of value of the benefit
or perquisite provided or likely to be provided to the resident during the financial year does
not exceed twenty thousand rupees.
4. The responsibility of tax deduction also does not apply to a person, being an
Individual/Hindu Undivided Family (HUF) deductor, whose total sales / gross
receipts / gross turnover from business does not exceed one crore rupees, or
from profession does not exceed fifty lakh rupees, during the financial year
immediately preceding the financial year In which such benefit or perquisite
is provided by him.
5. Sub-section (2) of section 194R of the Act authorises the Board to issue
guidelines, for removal of difficulties, with the approval of the Central
Government. These guidelines are required to be laid before each House of
Parliament and are binding on the income-tax authorities and the person
providing the benefit or perquisite.
6. Accordingly, in exercise of the power conferred by sub-section (2) of section
194R of the Act, CBDT had issued guidelines in the form of the Circular no 12
of 2022 dated 16th June 2022. Subsequently, some more clarifications are
requested by stakeholders on various issues. Accordingly, this Circular is also
issued under sub-section (2) of section 194R to provide clarification on Issues
which will help to remove difficulties in implementation of this provision.
1

What to watch

The Rs. 20,000 test is per recipient for the financial year and takes in benefits likely to be provided, not merely those already given, so it has to be judged looking forward.
The turnover exemption is only for individual and Hindu undivided family deductors and is measured on the immediately preceding financial year, not the current one.
Deduction is to be made before the benefit is provided, which is what makes benefits in kind awkward — tax has to be arranged first.
The text available here breaks off at the end of the introductory paragraphs, just before the questions and answers begin, so none of the actual clarifications this circular was issued to give are in the extract.

Where you meet it

On a section 201 or section 271C proceeding for failure to deduct under section 194R on sales incentives, free samples, sponsored travel or similar benefits, and in reconciling entries appearing in a recipient's annual information statement.

What it names

It mentions. Circular No. 12/2022, Circular No. 18/2022

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 12/2022 — Guidelines for removal of difficulties under sub section 2 of section 194R of the income tax act 1961 16 June 2022

← F.No.370133/13/2022-TPL · Circular No. 15/2022 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.