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The Finance Ministry is likely to clarify doubts on the applicability of new tax deducted at source (TDS) provisions related to benefits or perquisites received in a business or profession.

Joint Secretary in the finance ministry Kamlesh C Varshney said, "This (benefits and perquisites) is one area where nobody was paying taxes despite receiving benefits and perquisites in the course of business and profession... There is definitely a leakage here and therefore this section 194R. Whatever are the doubts, we are going to clarify the practical difficulties before July 1," as per the PTI report.

During Budget 2022-23, the government announced provisions on TDS on benefits or perquisites from businesses or professions to keep a check on tax revenue leakage.

Varshney said that these benefits like free medicine samples received by doctors, free IPL tickets, and foreign flight tickets received in the course of business or profession are income and should be disclosed in the income tax return.

Giving an example, Varshney said if a doctor is receiving free samples - then it will be shown as benefit or perquisites and is income. He explained that it doesn't matter whether the pharma company is using it as a sales promotion - the free samples should be shown as benefits or perquisites.

He further explained that the pharma company can claim a deduction for such sales promotion expenditure, but that promotion would be a taxable income in the hands of the person receiving it. He added, "Therefore you have to deduct TDS".

Thereby, stressing upon 194R is applicable to free samples received by doctors, Varshney said the taxability of such benefits cannot be based on the fact that since free samples are not being sold, it is not income, adding, "Free samples have a value."

The provision which will come into effect from July 1, directs that under the new section, 194R in the I-T Act - a 10% TDS will be deducted by any person providing any benefit or perquisite exceeding 20,000 a year to a resident - arising from the business or profession of such resident.

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