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All about New TDS Section 194R and Section 194S

The Finance Bill 2022 has proposed two completely new TDS sections, 194R and 194S, in the Income Tax Act, to be made effective from 1.7.2022.
Looking at the swift pace, with which the new TDS sections, are being inserted by the Legislature, year after year, in Chapter XVIIB of the Income Tax Act, 1961, it appears that very soon, the remaining seven sections 194T/U/V/W/X/Y and Z, will also be brought in, to complete the full ABC.
Before diving scuba-deep, into these two new TDS sections 194R and 194S, let us have a look at some of the official figures, throwing some light on the total contribution of Tax Deducted at Source (more popularly known as TDS), in the total direct tax collections.
As per the Press Release, issued by the Ministry of Finance, on 17.12.2021, the contribution of TDS, in the gross direct tax collections of Rs. 10.80 lakh crore (for FY 2021-22 uptill 16.12.2021) is Rs. 4.93 lakh crore in absolute terms. Other constituents are Advance Tax of Rs. 4,59,917.1 crore, Self-Assessment Tax of Rs. 74,336.2 crore; Regular Assessment Tax of Rs. 44,028.7 crore; Dividend Distribution Tax of Rs. 6,525.9 crore and Tax under other minor heads of Rs. 2390.6 crore.
So, in the gross direct tax collections of Rs. 10.80 lakhs, for the fiscal 2021-22 (up to 16.12.2021), the pre-assessment revenue collection measures of TDS, Advance Tax, Dividend Distribution and Self-Assessment Tax, constituted approximately 99% of the total collections and post assessment measures of regular assessment and others, constituted even less than 1%.
Further, TDS constituted approximately forty-six percent of the gross collection of direct taxes in the fiscal 2021-22 (as on 16.12.2021).
Usually, Outsourcing Partners are rewarded commensurately for their outsourcing contribution. But here, even after undertaking this onerous outsourcing of tax collection, on behalf of the Legislature, so effectively, the taxpayer is not rewarded in any manner. In fact, to the contrary, even a small lapse in compliance, results in some dire consequences, even prosecution.
In addition to this statutory onus of tax collection, last year, the Finance Act 2021, has also put the responsibility of examining the return filing discipline of the deductees on the deductors, by inserting another set of alphabets AB in section 206 (read section 206AB), requiring them to deduct TDS at twice the applicable rate or @ 5% (in some sections like 194C), in cases where the deductees have not filed their returns in the two immediately preceding years and the aggregate amount of TDS in each of the two years is Rs. 50,000 or more.
The Finance Bill 2022, has further widened the scope and coverage of this section 206AB, by reducing the time period for return filing of the deductees, to be considered by the deductors, from two years to one year w.e.f. 1.4.2022.
So, now, w.e.f. 1.4.2022, the deductors will be required to deduct TDS at twice the applicable rate or @5% (in some cases like section 194C), in cases, where the deductees have not filed their returns in the immediately preceding previous year and the amount of TDS equals Rs. 50,000 or more in that year.
With this backdrop, we now come to deciphering the two newly baked TDS sections by the Finance Bill 2022 Oven.
Section 194R: TDS @ 10% on Benefits or Perquisites arising out of Business or Profession
In Union Budget 2022, a new TDS section 194R, has been proposed in the Finance Bill 2022, w.e.f. 1.7.2022.
This new section 194R requires deduction of tax at source @ 10%, by any person, providing any benefit or perquisite, exceeding Rs. 20,000 in value, in a year, to a resident, arising from the business or profession of such resident and such benefit or perquisite is in the nature of income falling under section 28(iv) of the Income tax Act.
The benefit or perquisite referred to in this new section 194R is not the perquisite u/s 17(2), under the head salary income, paid or payable by the employer to employees, as for that perquisite u/s 17(2), another TDS section 192 is already there.
The benefits or perquisites proposed to be covered by this new section 194R are those perks, benefits, amenities, or facilities, probably in kind, or in a combination of cash and kind, which a resident person enjoys, pursuant to, or in exercise of his business or profession, in lieu of the regular consideration payable to him, in monetary terms, in exercise of such business or profession. Such benefits or perquisites are taxable as business receipts u/s 28(iv) of the Income Tax Act.
Section 194S: TDS @ 1% on Purchase Consideration of Virtual Digital Asset
In line with the existing TDS section 194IA requiring deduction of tax at source @ 1% on purchase of any immovable property exceeding rupees fifty lakhs in a year, the Finance Bill 2022, has proposed a new section 194S applicable w.e.f. 1.7.2022, mandating deduction of tax at source @ 1% on the payment of purchase consideration to a resident person, on transfer of a virtual digital asset, as defined in another new section 2(47A).
Further, two threshold limits, for the amount of purchase consideration, has been prescribed, to be liable for deduction of TDS under this new section 194S.
For ‘specified person’, i.e. an individual or HUF, whose total sales or gross receipts does not exceed rupees one crore, in case of business, or rupees fifty lakhs in case of profession, during the immediately preceding financial year, or, an individual or HUF, who does not have any income under the head business or profession, TDS under this new section 194S is required to be deducted only, if the amount of purchase consideration for purchase of virtual digital asset, exceeds rupees fifty thousand, during the financial year.
In case of a person other than such specified person, including firms, LLPs and companies, TDS under this new section 194S is required to be deducted only, if the amount of purchase consideration for purchase of virtual digital asset, exceeds rupees ten thousand, during the financial year.
It is also noteworthy to mention here that the Finance Bill 2022 has also proposed a new section 115BBH applicable w.e.f. 1.4.2022, mandating the taxability of the income arising from the transfer of virtual digital asset at a flat rate of 30% plus applicable surcharge and cess, with reduction only in respect of its cost of acquisition, and excluding all other reductions including adjustment of brought forward losses.

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