Finance bill 2022 appears to have specific focus on non-monetary & in kind benefits provided by business houses to its stakeholders, distributors, dealers & business partners. It has been a usual practice for some businesses to reward or provide free gifts to its business partners on achievement of targets or goals in sales/business.
Finance bill 2022 has come up with a couple of amendments which would force the businesses to relook into the way such free gifts/benefits are dealt with. Every time a free gift or in kind benefit is to be passed on to the business partners, the payer would need to carefully consider the following-
- Determine if an expenditure results in a benefit or perquisite to the recipient
- Verify if the acceptance of the benefit or perquisite by the recipient is in violation of any law or rules or guidelines as may be applicable to the recipient. In case it is so, the expenditure on account of such free benefit or perquisite would not be a tax deductible expenditure for the payer.
- In case the value of such benefit/perquisite provided to an Indian resident is in excess of INR 20,000, deduct a tax of 10% before providing such benefit/perquisite to the business partner
- In case the benefit is provided in kind, the payer would need to ensure deposit of 10% taxes before releasing such benefits to the recipient.
The proposed amendments would not only increase the cost of doing business for the corporates but would also cast onerous compliance obligation on the business houses.
