If your business gives gifts, incentives, free samples, sponsored trips, gold coins, electronics or any other freebie to dealers, distributors, doctors, influencers or business associates worth more than ₹20,000 in a year — you must deduct TDS at 10% before providing the benefit. This page explains the full law, the CBDT circular clarifications, and the Income-tax Act 2025 transition — with a free calculator and applicability checker.
Section 194R of the Income-tax Act, 1961 (inserted by the Finance Act, 2022, effective 1 July 2022) requires any person who provides a benefit or perquisite — whether convertible into money or not — to a resident, arising from that resident's business or profession, to ensure that tax at 10% of the value of the benefit is deducted before the benefit is provided.
The provision was introduced because businesses routinely claimed deduction for the cost of dealer gifts, incentive trips, free samples and similar promotional benefits, while recipients frequently did not report the value as income under Section 28(iv) of the 1961 Act (now the corresponding business-income provision of the Income-tax Act, 2025). Section 194R creates a deduction-side compliance trail so that these benefits are reported and taxed in the recipient's hands.
Three features make this provision unusual among TDS sections:
The Income-tax Act, 2025 consolidates all TDS provisions into a single table-driven framework under Section 393. The obligation of old Section 194R now sits at Section 393(1), Table for payments to residents, Serial No. 8(iv). The substance is unchanged — same 10% rate, same ₹20,000 threshold, same "deduct before providing" trigger — but section references, return forms and payment codes have changed.
| Particular | Income-tax Act, 1961 (TDS up to FY 2025-26) | Income-tax Act, 2025 (TDS from FY 2026-27, i.e. 1 April 2026) |
|---|---|---|
| Charging provision | Section 194R | Section 393(1), Table Sl. No. 8(iv) |
| Rate | 10% of value of benefit/perquisite | 10% — unchanged |
| Threshold | ₹20,000 aggregate per recipient per FY | ₹20,000 — unchanged |
| Higher rate — no PAN | 20% under Section 206AA | 20% under Section 397(2) |
| Quarterly TDS statement | Form 26Q | Form 140 (Income-tax Rules, 2026) |
| TDS certificate | Form 16A within 15 days of statement due date | Corresponding certificate as notified under the Income-tax Rules, 2026 |
| Deposit challan | ITNS 281, by 7th of next month (30 April for March) | Same timelines, Section 393 payment code on the e-filing portal |
| Expense disallowance on default | Section 40(a)(ia) | Corresponding disallowance provision of the 2025 Act |
Practical position for FY 2026-27 (current year): deductions made on or after 1 April 2026 fall under Section 393(1) Sl. No. 8(iv) and are reported in Form 140. Deductions made up to 31 March 2026, pending statements, corrections and notices for earlier years continue to be governed by Section 194R and Form 26Q under the 1961 Act. Update your TDS software, deductee masters and payment codes accordingly.
Verify any old-to-new section mapping instantly with our free Income-tax Act 1961 ↔ 2025 Section Finder and match old and new form numbers with the Income Tax Form Finder.
Enter the value of benefits or perquisites provided (or likely to be provided) to one recipient during the financial year and check the TDS instantly.
Indicative computation for general guidance only — it does not constitute professional advice. Valuation of in-kind benefits (fair market value / purchase price / customer price) and gross-up mechanics need case-specific review. Consult us for your facts.
Any person — company, firm, LLP, individual, HUF, AOP — responsible for providing a benefit or perquisite to a resident must ensure tax is deducted. The deductor may be a resident or a non-resident. For a company, the "person responsible" includes the company itself and its principal officer.
An individual or HUF is not required to deduct if, in the immediately preceding financial year, their total sales/turnover did not exceed ₹1 crore (business) or gross receipts did not exceed ₹50 lakh (profession).
TDS applies only where the benefit arises from the business or profession of a resident recipient. Therefore:
1. Is the recipient of the benefit a resident carrying on business or profession (not your employee)?
2. Does the benefit arise from that business or profession (dealer incentive, free sample, sponsored trip, etc.)?
3. Will the aggregate value of benefits to this recipient exceed ₹20,000 in the financial year?
4. Are you a company / firm / LLP, or an individual/HUF whose preceding-year turnover exceeded ₹1 crore (business) / ₹50 lakh (profession)?
The most litigated practical issue under this provision: if you hand over a car or sponsor a trip, there is no cash from which to deduct 10%. The first proviso resolves this by requiring the provider to ensure tax has been paid before releasing the benefit.
Two accepted routes:
The provider bears and deposits the TDS out of pocket on the value of the in-kind benefit before releasing it. The grossed-up amount itself may constitute an additional benefit, so the computation should be reviewed carefully before deposit.
The recipient pays tax on the benefit as advance tax and provides the provider a declaration along with the challan copy. The provider then reports this in the quarterly TDS statement (Form 26Q / Form 140) with the challan details, and releases the benefit.
| Situation | Value for TDS |
|---|---|
| General rule | Fair market value of the benefit or perquisite |
| Provider purchased the item before giving it | The purchase price paid by the provider |
| Provider manufactures the item | The price charged to customers for that item |
| GST component | Excluded — CBDT has clarified GST is not included in the value for TDS |
Where a recipient receives a depreciable asset as a benefit, the recipient may claim depreciation if the provider deducted/ensured payment of tax, the recipient offers the benefit as income in the return, and that amount is treated as the "actual cost" of the asset — subject to the normal depreciation conditions.
CBDT is statutorily empowered to issue binding guidelines on this provision. Click each question to expand.
No. The deductor is not required to verify whether, or under which provision, the benefit would be taxable for the recipient. Once a benefit or perquisite arising from business or profession is provided to a resident above the threshold, the deduction obligation stands on its own.
Yes. Courts have consistently held that a benefit is taxable in the recipient's hands even when it takes the form of a capital asset. So a car, land or similar asset given as a business benefit is within the TDS net.
TDS is deducted in the name of the recipient entity — the usage by its owner, director, employee or their relatives flows from their relationship with the entity. Example: free medicine samples given to a doctor employed by a hospital are treated as a benefit to the hospital; the hospital may in turn treat it as a salary perquisite of the doctor and deduct salary TDS. For a consultant (non-employee) doctor, the original provider may alternatively deduct directly treating the consultant as recipient. The ₹20,000 threshold is tested at the level of the recipient entity — e.g. benefits of ₹5,000 each to 10 employed doctors aggregate to ₹50,000 for the hospital, so TDS applies.
No TDS is required on sales discounts, cash discounts and rebates allowed to customers, or on genuine free units bundled with purchases (e.g. 2 free with 10, where buyer and seller record 12 items at the price of 10). But this relaxation does not extend to other seller-provided benefits connected with sales — free samples, incentive goods (car, TV, gold coin, phone), sponsored trips and free event tickets all remain covered.
Specified lenders are relieved from deducting on one-time loan settlements or waivers: public financial institutions, scheduled banks, cooperative banks (other than PACS), primary co-operative agricultural and rural development banks, state financial corporations, state industrial investment corporations, deposit-taking NBFCs, systemically important non-deposit-taking NBFCs, notified housing-finance public companies and asset reconstruction companies. Any other lender waiving a loan must deduct. Taxability of the waiver in the borrower's hands is decided separately under the normal provisions.
If the influencer returns the product (car, phone, outfit, cosmetics etc.) after using it for creating content, it is not a benefit. If the influencer retains it, it is a benefit or perquisite and TDS applies on its value.
The test is the name on the invoice. If the underlying expense is invoiced in the name of the person making the reimbursement, it is not a benefit. If the invoice is in the service provider's name, the reimbursement is treated as a benefit — even on a cost-to-cost basis. Reimbursements to a qualifying "pure agent" (payment on the principal's authorisation, separately indicated in the invoice, no title or personal use, recovery at actuals) are also excluded. And where the reimbursement forms part of a consideration already suffering TDS under another provision (e.g. contractor or professional-fee TDS on the gross bill), no separate deduction is needed under this section.
Expenses of a conference held primarily to educate dealers/customers — new product launches, product comparisons, order collection, sales training, query handling, account reconciliation — are not benefits. However, three components are benefits: (a) any leisure trip or leisure component, even if incidental; (b) expenses of accompanying family members; and (c) prior-stay or overstay beyond conference dates (one day immediately before and after is acceptable). Where allocation of such expenses to individual dealers is impractical, the provider may instead forgo the expense deduction, in which case no TDS is required and assessee-in-default treatment does not arise.
No deduction is required on bonus shares issued, or rights shares offered, to all shareholders by a company in which the public are substantially interested.
No. Relaxations from deduction do not affect taxability in the recipient's hands. The recipient must still evaluate and report the benefit under the normal charging provisions.
Flag every dealer incentive, free sample, sponsored trip and freebie in marketing/sales workflows. Track the aggregate per recipient against the ₹20,000 threshold. Value at FMV / purchase price / customer price, excluding GST.
Deduct 10% (20% without PAN) before releasing the benefit. For wholly in-kind benefits, follow the gross-up route or obtain the recipient's advance-tax declaration and challan copy.
By the 7th of the following month; tax deducted in March is depositable by 30 April. From FY 2026-27, use the Section 393 payment code framework on the e-filing portal.
Form 26Q for periods governed by the 1961 Act; Form 140 for deductions from FY 2026-27 under the Income-tax Act, 2025. Report in-kind benefits with the linked advance-tax challan where applicable. See our dedicated page on TDS filing in Forms 138/140/144 under the IT Act 2025.
Form 16A (1961 regime) within 15 days of the statement due date, or the corresponding certificate notified under the Income-tax Rules, 2026. The recipient claims credit through their return; mismatches can be resolved — see TDS credit mismatch (Form 71/102).
1% per month (or part) from the date tax was deductible until actually deducted; 1.5% per month from deduction until deposit. Applies under Section 201 of the 1961 Act and the corresponding provision of the 2025 Act.
The related expenditure can be disallowed in the provider's own computation — Section 40(a)(ia) under the 1961 Act, with the corresponding disallowance continuing under the Income-tax Act, 2025. This directly inflates taxable business income.
Penalty equal to the tax not deducted (Section 271C, 1961 Act), penalty under Section 221 for non-deposit after deduction, and prosecution exposure under Section 276B — subject to reasonable cause and compounding. Equivalent provisions continue under the 2025 Act.
Fee of ₹200 per day of delay in filing the TDS statement (capped at the TDS amount), plus penalty of ₹10,000 to ₹1,00,000 for continued default and ₹500 per day for failure to issue certificates.
Benefit-and-perquisite TDS is an active verification area — spend on gifts, incentives and conferences claimed as business expenditure is cross-matched against TDS statements. Already received a notice? See our TDS notice representation and faceless assessment & appeal services.
TDS defaults surface in the tax audit report, making them visible to the Department. Align your 194R/393 positions before audit — see Tax Audit under Section 44AB.
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Per recipient, per financial year, on an aggregate basis. Once total benefits to one recipient cross ₹20,000, TDS applies on the entire value from the first rupee — not just the excess over ₹20,000.
No. The 10% rate is not increased by surcharge or health & education cess. However, if the recipient's PAN is not furnished, the rate rises to 20% (Section 206AA of the 1961 Act; Section 397(2) under the Income-tax Act, 2025).
If the gift is connected with the recipient's business or profession and total benefits to that recipient exceed ₹20,000 in the year, yes. Purely personal gifts on social occasions such as a marriage, with no business nexus, are outside the section — but the facts must genuinely support that position.
Deductions from 1 April 2026 fall under Section 393(1) Sl. No. 8(iv) of the Income-tax Act, 2025 and are reported in Form 140 under the Income-tax Rules, 2026. Form 26Q continues only for periods and corrections governed by the 1961 Act (up to FY 2025-26).
Report the benefit as income in your return and claim the TDS credit reflected in your Form 26AS / AIS on the basis of the certificate issued by the provider. If the credit does not appear, it can be traced and corrected — see our TDS credit mismatch page.
No. Under the transitional provisions of the Income-tax Act, 2025, proceedings for periods governed by the 1961 Act — including TDS default proceedings for FY 2022-23 to FY 2025-26 — continue under the 1961 Act. The new framework applies to deductions from FY 2026-27 onwards.
Whether you run incentive schemes for dealers, distribute samples, engage influencers, or have received a TDS default notice — get a clear, ICAI-compliant professional review of your obligations under both the Income-tax Act, 1961 and the Income-tax Act, 2025.
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