Section 194R, TDS on business perquisites.

Section 194R applies when:

• A person responsible for providing a benefit or perquisite,
• In cash or kind (or partly both),
• Arising from a business or profession carried on by the beneficiary,
• Where the aggregate value in a financial year exceeds INR 20,000.

In that case, the provider must deduct TDS at 10% on the value of the benefit or perquisite before providing it (or in cases where the perquisite is non-cash, after ensuring the recipient has deposited the equivalent cash with the provider for TDS, OR grossing up).

Common perquisites in scope:

• Free product samples to dealers, distributors, retailers, influencers.
• Sponsored business travel (clients attending company events / conferences at provider cost).
• Gifting of goods / incentives / contests to dealers or channel partners (if value > INR 20K per recipient per year).
• Waiver of loans or settlement of debt by seller / vendor in course of business.
• Capital assets provided to customer / dealer (free equipment, free fit-outs).
• Discounts beyond ordinary trade discount with no commercial basis.

What is OUT of scope:

• Pure sales (no benefit/perquisite).
• Ordinary trade discount, rebate, commission that is already reflected in invoice pricing.
• Perquisites to employees (covered under Section 192 salary TDS).
• Perquisites to a non-resident (covered under Section 195).
• Benefit below INR 20,000 per recipient per year.

• Free samples to influencers / content creators: a USD 1,000 free sample to a social-media influencer in exchange for a product review triggers 194R. The business must withhold 10% TDS and the influencer must declare the receipt as business income. CBDT Circular 12 of 2022 specifically clarified this.
• Free travel to clients at company events: client travel paid by the business for an industry conference triggers 194R if the fair-value exceeds INR 20K per client per year.
• Dealer / distributor incentives in kind: branded cars, foreign trips, gold coins to top-performing dealers — all 194R-covered.
• Loan waivers / debt settlements: writing off a vendor's dues or waiving a customer's loan triggers 194R TDS on the waived amount (CBDT Circular 18 of 2022).
• Capital goods provided free: free refrigeration units to retailers, free POS devices, free trade equipment. Section 194R applies on the fair-value of the capital asset.
• Non-cash perquisites without recipient cash deposit: if the perquisite is entirely non-cash, the provider needs to ensure the recipient deposits the TDS portion in cash before providing (or gross up the perquisite's fair-value so the net reflects the gross-benefit intent).

1. Identify in-scope perquisites: review your sales + marketing + channel-incentive spends for non-cash benefits provided to third-party recipients.
2. Determine fair-value: cost of goods for free samples, market value for free travel, imputed interest for loan waivers.
3. Aggregate per recipient per FY: Section 194R threshold is INR 20K cumulative per recipient per financial year, not per transaction.
4. Deduct 10% TDS on the fair-value above the threshold at the time of provision. For non-cash perquisites, ensure recipient cash deposit or gross up.
5. Deposit TDS with government by 7th of following month (last month of FY: by 30 April).
6. Issue Form 16A to the recipient within quarterly timeline. Recipient claims the TDS credit on their ITR.
7. File Form 26Q quarterly reporting TDS on non-salary payments (Section 194R falls here).

Through multiple CBDT Circulars (Circular 12 of 2022, 18 of 2022, 2 of 2023, and subsequent):

• Sales targets / discounts met via volume incentives: NOT in scope if treated as price adjustment in invoice.
• Discounts given in course of ordinary sales: NOT in scope.
• Shadow discounts via credit notes: generally NOT in scope if reflects commercial pricing.
• Free samples sent to healthcare professionals: IN scope under 194R (not treatable as medical samples outside tax). Pharma industry specifically covered.
• Conference reimbursements: IN scope if recipient's business benefits (sales conferences to dealers; attendee travel paid).
• Dealer rewards tours / gold coins / cars: IN scope.
• Loan waiver by seller to buyer in commercial settlement: IN scope.
• Treatment of recipient's cash deposit toward non-cash perquisite's TDS: provider deducts TDS; recipient treats as business income with TDS credit.

Last updated: 2026-10-09.