10% TDS on Benefits and Shares Given to Directors

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Allotment of shares to directors, providing cars to them, and a sponsored business trip or conference by a company will attract 10% tax deducted at source (TDS) from July, 1.

The Central Board of Direct Taxes (CDBT) on Thursday issued a detailed guidelines on deduction of tax at source under Section 194R of the Income Tax Act. It requires deduction of TDS at the rate of 10% by any person providing any benefit or perquisite, exceeding Rs. 20,000 in a year to a resident. The provision was introduced in the last budget.

As per the guidelines, TDS is required to be deducted even where benefits or perquisites may be used by owner, director, employee of the recipient entity, or their relatives who in their individual capacity may not be carrying on business or exercising a profession.

TDS will be applicable in case of capital assets including allotment of shares or cars to company directors.

The provision will not be applicable on sales discount, cash discount or rebates offered to customers, but will apply on the seller providing incentives other than discount or rebate, which are in cash or kind. These could be, for instance car, TV, computers, gold coin, mobile phone, sponsored trip, free ticket, or medicine samples to medical practitioners.

The guidelines exempt government hospitals.

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