This Tax Alert explains Circular No. 18 dated 13 September 2022 (Circular) issued by the Central Board of Direct Taxes (CBDT) with a view to remove difficulties and provide guidance on various issues on interpretation and application of a withholding provision, Section (S.) 194R, under the Income Tax Law (ITL).
S.194R, inserted in the ITL vide Finance Act, 2022, mandates a person providing benefit/perquisite to a resident to withhold tax at 10% on the value or aggregate value of such benefit or perquisite, subject to certain conditions. Furthermore, S.194R of the ITL contains a specific provision enabling the CBDT to issue guidelines for the purposes of removal of any difficulty in giving effect to the provisions of S.194R of the ITL.
In exercise of such powers, the CBDT had earlier issued Circular 12/2022 dated 16 June 2022 providing certain clarifications and relaxation on applicability of withholding under S.194R of the ITL. Subsequently, additional representations were made by the stakeholders requesting further clarifications on various issues in relation to withholding obligation under S.194R of the ITL. Accordingly, the CBDT has issued a Circular 18/2022 dated 13 September 2022 (Circular) to clarify certain additional issues on interpretation or application of S.194R of the ITL.
Circular 18/2022, inter alia, clarifies that no withholding is required on waiver by banks on settlement of loan, reimbursement of out-of-pocket expense on which taxes are withheld under other provisions of ITL or incurred by ‘pure agents’, benefit provided by Embassies/High Commissions of foreign governments and issuance of bonus shares/right shares by widely held companies. It further provides clarity on some of the aspects dealing with dealer conference and depreciation claim with respect to benefit/perquisite received in the form of an asset.
