Taxability on Benefits and Perquisites – Impact on Food Processing Sector

Background and Legislative Intent

Section 28(iv) of the Income-tax Act, 1961 (the Act) was introduced in the Finance Act, 1964 to tax the value of any benefit or perquisite, whether convertible into money or not, arising from the business or exercise of the profession by the assessee. However, even after five decades, there was no mechanism available to tax administrators to track whether such benefits and perquisites were offered to tax by the recipients. In many cases, the tax administrators claim that such benefits or perquisites are not offered to tax.

To plug the lacuna in the law and to have an Audit Trail of the benefit and perquisite received by the assessee, a new Section 194R was inserted vide Finance Act, 2022 to provide for withholding tax on the value of the benefits or perquisites.

It is to be noted that the provisions regarding the taxability of benefits or perquisites arising during the course of business or profession always existed in the statute books. Thus, if something was not taxable earlier, it would not be taxable now as well.