Section 194R —
10% TDS on Benefits & Perquisites
The 10% TDS on business benefits and perquisites — dealer incentives, foreign trips, gold coins, free samples to doctors and freebies to influencers — the Rs20,000 threshold, valuation rules and CBDT exclusions.
Section 194R requires any person giving a benefit or perquisite — in cash, in kind, or partly both — arising from the recipient's business or profession to deduct TDS at 10% of its value. It is effective from 1 July 2022 and applies once the aggregate value to one recipient crosses Rs 20,000 in a financial year. Small individuals/HUF (turnover ≤ Rs 1 crore or professional receipts ≤ Rs 50 lakh) are exempt from deducting.
Section 194R — Applicability Conditions
Section 194R was introduced by the Finance Act 2022. It targets non-cash rewards businesses hand out to their dealers, distributors, doctors and influencers — value that was often escaping tax as it never showed up as cash. Every core condition is below.
| Condition | Requirement |
|---|---|
| Who deducts | Person providing the benefit/perquisite — company, firm, or individual/HUF above the limits below |
| Deductor exemption | Individual/HUF with business turnover ≤ Rs 1 crore or professional gross receipts ≤ Rs 50 lakh in the preceding FY |
| Recipient | A resident deriving the benefit from business or profession (employee perquisites fall under salary/other TDS instead, not 194R) |
| Rate | 10% of the value of the benefit or perquisite |
| Threshold | Aggregate value > Rs 20,000 per recipient per financial year |
| Form of benefit | Cash, kind, or partly both — trips, gold coins, cars, gadgets, free samples, sponsorships |
| Wholly in kind | Provider must ensure tax is paid (recipient's advance-tax proof, or provider grosses up) before releasing the benefit |
| Effective date | 1 July 2022 (Finance Act 2022); continues under the Income-tax Act 2025 from 1 April 2026 |
Threshold and 10% rate are unchanged for FY 2025-26 — Budget 2025 did not touch Section 194R.
Once the aggregate value of benefits to one recipient crosses Rs 20,000 in the year, 10% TDS applies on the whole value — not just the excess over Rs 20,000. Benefits from different providers are not clubbed for this limit.
What Counts as a Benefit — and What Is Excluded
CBDT Circular 12/2022 (June 2022) and Circular 18/2022 (September 2022) draw the line between a taxable business benefit and an ordinary trade practice that stays outside 194R.
| Covered by 194R (TDS applies) | Excluded per CBDT Circulars 12/2022 & 18/2022 |
|---|---|
| Dealer/distributor incentives — foreign trips, gold coins, cars, appliances | Sales discounts, cash discounts and rebates given to customers |
| Free medicine samples retained by doctors (or their hospital/employer) | One-time loan settlements/waivers by banks & specified financial institutions |
| Free products retained by social media influencers after review | Products returned to the company after the review/use |
| Sponsored leisure trips and family travel added to business events | Reimbursement of out-of-pocket expenses where the invoice is in the client's name |
| Gift vouchers, gadgets and prizes linked to business targets | Dealer conferences held to educate dealers about products (education component) |
| Benefits partly in cash and partly in kind | Bonus shares and rights shares issued to all shareholders |
Product returned after review
- Influencer returns the phone/car/outfit
- No benefit is retained
- No TDS under 194R
- Common for loaned demo units
Product retained by influencer
- Influencer keeps the product
- It is a benefit from profession
- 10% TDS once value > Rs 20,000/yr
- Value = fair market / purchase price
Giving dealer incentives or freebies to doctors/influencers? Get your 194R position checked.
Talk to a TDS Expert →Valuation of Benefits in Kind
Per CBDT Circular 12/2022, a benefit in kind is valued at its fair market value, with two exceptions:
- If the provider purchased the item before giving it away, the purchase price is the value.
- If the provider manufactures the item, the price it charges its customers for that item is the value.
- GST is not included in the valuation of the benefit.
Where the benefit is wholly in kind, there is no cash to deduct 10% from — so the provider must first ensure the tax has been paid, either by collecting advance-tax proof from the recipient or by grossing up and depositing the TDS itself, before handing over the benefit.
How 194R TDS Is Computed
Gold coin to a distributor
Wholly-in-kind, provider grosses up
For a benefit wholly in kind, the provider cannot recover 10% from thin air — many companies simply gross up and bear the TDS as a cost, or take the recipient's advance-tax challan before releasing the item. Build this into the incentive scheme's budget, not as an afterthought.
Recipient Side — Income Under Section 28(iv)
Section 194R only collects tax at source — it does not settle the recipient's liability. The recipient must offer the value of the benefit as business income under Section 28(iv) in their ITR, and claim the 10% TDS visible in Form 26AS/AIS as credit. If the recipient's effective rate exceeds 10%, the balance is payable as advance or self-assessment tax; if it is lower, the excess TDS is refunded on ITR processing.
Deductors report 194R deductions in the quarterly Form 26Q TDS return and issue Form 16A to recipients. Check the applicable rate against the full TDS rate chart 2025-26.
Continuity Under the Income-tax Act 2025
The Income-tax Act 2025 replaced the Income-tax Act 1961 with effect from 1 April 2026. The 194R obligation now sits under Section 393(1), Table Sl. No. 8(iv) of the new Act, but the substance is unchanged — 10% TDS, the same Rs 20,000 threshold, and the same small individual/HUF exemption. The CBDT circular clarifications continue to guide interpretation, and "Section 194R" remains the familiar reference.
You likely must deduct 194R if
- You give dealer/distributor trips, gold coins or gadgets
- You give free samples doctors or influencers retain
- Value to one recipient exceeds Rs 20,000/year
- Your turnover is above the Rs 1cr / Rs 50L limits
194R usually does not apply if
- It is a plain sales/cash discount or rebate
- The product is returned after review
- Reimbursement invoice is in the client's name
- You are a small individual/HUF below the limits
Need quarterly Form 26Q filing with Form 16A issuance done for you?
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