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What is TDS?
Tax Deducted at Source (TDS) is a means of collecting tax on income, dividends, or asset sales by requiring the payer to deduct tax due before making the payment to the payee. The deducted tax is then remitted to the government on behalf of the payee.
Gift Vouchers and TDS
Gift vouchers are pre-paid stored value money cards that can be issued by businesses to individuals or employees as a reward or incentive. The issuance and receipt of gift vouchers can be subject to TDS under certain conditions.
TDS Rules for Gift Vouchers
The applicability of TDS on gift vouchers depends on the context in which they are issued:
- To Employees: If gift vouchers are given to employees and the value exceeds INR 5,000 in a financial year, it is treated as a perquisite, and TDS is applicable under Section 192 of the Income Tax Act.
- To Non-Employees: If gift vouchers are given to non-employees (such as customers or business associates) and the value exceeds INR 20,000 in a financial year, TDS is applicable under Section 194R of the Income Tax Act.
For non-employees, TDS is applicable if the value of gift vouchers exceeds INR 20,000 in a financial year under Section 194R.
Calculating TDS on Gift Vouchers
| Scenario | Recipient | Threshold | Applicable Section | TDS Rate |
|---|---|---|---|---|
| Gift vouchers to employees | Employees | INR 5,000 | Section 192 | As per salary slab |
| Gift vouchers to non-employees | Non-employees | INR 20,000 | Section 194R | 10% |
Gift vouchers excluded from Section 194S: VDAs
The tax has been introduced through a new section 194S in the Income-tax Act, 1961, as per a circular issued by the income tax department last week. This section outlines the specific conditions and rates at which TDS must be deducted on certain transactions, including those involving gift vouchers.
Additionally, the definition of Virtual Digital Assets (VDAs) under section 194S excludes certain types of rewards. Mileage points, reward points, or loyalty cards received under award and reward programs, loyalty programs, incentive schemes, rebate or promotional programs, which can be redeemed for goods, services, or discounts on goods and services, are not considered VDAs. This exemption ensures that typical consumer rewards programs are not subject to TDS under this section.
Pros and Cons of Gift Vouchers
Pros:
- Flexibility for the recipient
- Easy to distribute
- Can be used as a motivational tool
- Potential for bulk purchase discounts
Gift vouchers given to employees exceeding INR 5,000 in a financial year are treated as a perquisite and subject to TDS under Section 192.
Cons:- Potential TDS implications
- May expire if not used in time
- Limited to specific stores or brands
- Administrative effort in tracking issuance and usage
Frequently Asked Questions
What is the threshold for TDS on gift vouchers given to employees?
For employees, TDS is applicable if the value of gift vouchers exceeds INR 5,000 in a financial year.
What is the applicable TDS rate for gift vouchers given to non-employees?
For non-employees, the TDS rate is 10% if the value of gift vouchers exceeds INR 50,000 in a financial year.
How should TDS be calculated for gift vouchers?
TDS should be calculated based on the applicable section of the Income Tax Act. For employees, it is as per their salary slab, and for non-employees, it is at a flat rate of 10%.
Are mileage points, reward points, or loyalty cards subject to TDS under Section 194S?
No, mileage points, reward points, or loyalty cards received under various award, reward, loyalty, incentive, rebate, or promotional programs are exempt from TDS under Section 194S. These can be redeemed for goods, services, or discounts without being subject to TDS.
Is a gift voucher considered a lottery winning?
No, a gift voucher is not considered a lottery winning. Gift vouchers are given as rewards, incentives, or gifts and can be redeemed for goods or services. Lottery winnings, however, are prizes won through a lottery system involving the purchase of tickets and random selection of winners.
Are gift vouchers subject to TDS if their value is below the threshold?
No, gift vouchers below the specified threshold are not subject to TDS.
Failure to deduct TDS on eligible gift vouchers can result in penalties and interest charges from the Income Tax Department.