Section 194R — 10% TDS on Benefits & Perquisites

Updated: 16 July 2026 | Effective 1 July 2022 | Income-tax Act 1961 (continues under ITA 2025)

Section 194R requires any person providing a benefit or perquisite — in cash or in kind — arising from a recipient's business or profession to deduct TDS at 10% of its value, effective 1 July 2022. Threshold: aggregate value exceeding ₹20,000 per recipient per financial year. Covers dealer incentive trips, gold coins, gadgets, free samples retained by doctors, and free products retained by influencers. Individuals/HUF with business turnover ≤ ₹1 crore or professional receipts ≤ ₹50 lakh are exempt from deducting.

10%

TDS rate under Sec 194R = 10% of the value of the benefit or perquisite, once value exceeds ₹20,000 in a financial year.
Applies whether the benefit is in cash, in kind, or partly both. For benefits wholly in kind, tax must be ensured as paid before release.

Section 194R — Applicability Conditions

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 ≤ ₹1 crore or professional gross receipts ≤ ₹50 lakh in preceding FY
Recipient	Resident deriving the benefit from business or profession (employee perquisites fall under Section 192 salary TDS instead)
Rate	10% of value of benefit or perquisite
Threshold	Aggregate value > ₹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

What Counts as a Benefit — and What Is Excluded

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 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

Valuation of Benefits in Kind

CBDT Circular 12/2022 sets the valuation rules: the benefit is valued at its fair market value, except that (a) if the provider purchased the item before giving it away, the purchase price is used, and (b) if the provider manufactures the item, the price charged to its customers for that item is used. GST is not included in the valuation. 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.

Recipient Side — Income Under Section 28(iv)

TDS under Section 194R does not settle the recipient's tax. The recipient must still offer the value of the benefit or perquisite 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 tax rate is higher than 10%, the balance is payable as advance or self-assessment tax; if 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.

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 requirement to deduct 10% TDS on business benefits and perquisites continues under the corresponding TDS provision of the new Act, with the same ₹20,000 threshold and the same small individual/HUF exemption. The CBDT circular clarifications continue to guide interpretation in substance, and "Section 194R" remains the reference for deductions relating to periods before 1 April 2026.

Frequently Asked Questions

What is Section 194R and when did it come into effect?

Section 194R of the Income-tax Act, 1961 requires any person providing 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 the value of that benefit. It was introduced by the Finance Act 2022 and is effective from 1 July 2022. Typical examples: dealer incentive trips, gold coins to distributors, free samples retained by doctors, and free products retained by social media influencers. The Income-tax Act 2025 replaced the 1961 Act from 1 April 2026, and the same TDS requirement on business benefits and perquisites continues under the corresponding provision of the new Act.

What is the threshold limit under Section 194R?

TDS under Section 194R applies only if the aggregate value of benefits or perquisites provided to a single recipient exceeds ₹20,000 in a financial year. Once the ₹20,000 threshold is crossed, TDS at 10% applies on the value of the benefit. The threshold is per recipient per deductor per financial year — benefits from different providers are not clubbed for this limit.

Who is required to deduct TDS under Section 194R?

The person providing the benefit or perquisite must deduct — typically companies and firms giving dealer/distributor incentives, foreign trips, gold coins, gadgets, free medicine samples to doctors, or free products to influencers. Exemption: an individual or HUF whose business turnover was ≤ ₹1 crore or professional gross receipts were ≤ ₹50 lakh in the preceding financial year is NOT required to deduct under Section 194R. The recipient must be a resident deriving the benefit from business or profession — benefits to employees are covered by salary TDS (Section 192) instead, as employer-employee perquisites are taxed under the salary head.

How is a benefit in kind valued for Section 194R TDS?

Per CBDT Circular 12/2022, the valuation is based on fair market value of the benefit, with two exceptions: (1) if the provider purchased the item before giving it, the purchase price is the value; (2) 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. Where the benefit is wholly in kind (no cash component to deduct from), the provider must ensure tax on the benefit has been paid — either the recipient pays advance tax and gives proof, or the provider grosses up and pays the TDS itself — before releasing the benefit.

What is excluded from Section 194R per CBDT Circulars 12/2022 and 18/2022?

CBDT Circular 12/2022 (June 2022) clarified that sales discounts, cash discounts and rebates given to customers are excluded from Section 194R, as are items like capital assets given back. Circular 18/2022 (September 2022) added further relaxations: one-time loan settlements/waivers by banks and specified financial institutions are not subject to 194R; reimbursement of out-of-pocket expenses is not a benefit if the supporting invoice is in the name of the client who bears the cost; expenses for dealer conferences held to educate dealers about products are not benefits (though leisure trips and add-on family travel are); and bonus or rights shares issued to all shareholders are excluded. Free samples, however, remain taxable benefits if retained.

Does Section 194R apply to free products given to doctors and influencers?

Yes, in most cases. Free medicine samples provided by pharma companies to doctors are benefits under Section 194R — if the doctor is an employee of a hospital, TDS is deducted in the hands of the hospital (which may then treat it as employee salary perquisite). For social media influencers, CBDT Circular 12/2022 draws a line: if the product (phone, car, outfit etc.) given for review is RETURNED to the company, it is not a benefit; if the influencer RETAINS the product, it is a benefit and 194R TDS applies once the ₹20,000 annual threshold is crossed.

Is the benefit still taxable for the recipient even after TDS under 194R?

Yes. Section 194R only collects tax at source — it does not settle the recipient's liability. The recipient must offer the value of the benefit or perquisite as business income under Section 28(iv) of the Income-tax Act (benefit or perquisite arising from business or profession) in their ITR, and can claim the 10% TDS reflected in Form 26AS/AIS as credit against the final tax. If the recipient's slab/effective rate exceeds 10%, the balance is payable as advance tax or self-assessment tax.

Does Section 194R continue under the new Income-tax Act 2025?

Yes, in substance. The Income-tax Act 2025 replaced the Income-tax Act 1961 with effect from 1 April 2026. The obligation to deduct 10% TDS on benefits and perquisites arising from business or profession continues under the corresponding TDS provision of the new Act, with the same ₹20,000 threshold and the same exemption for small individuals/HUF. Existing CBDT clarifications (Circulars 12/2022 and 18/2022) continue to guide interpretation in substance, and "Section 194R" remains the reference for deductions relating to periods before 1 April 2026.

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