If your business gives free gifts, foreign tours, gadgets, or promotional items to agents, dealers, influencers, or doctors — you must now follow new TDS rules under Section 194R of the Income Tax Act.
From FY 2024–25 onwards, the Income Tax Department is strictly monitoring these transactions. This blog will help you understand how Section 194R works and how to stay compliant in simple, easy-to-follow language.
Table of Contents
What is Section 194R?
Section 194R requires a business or professional to deduct 10% TDS on any benefit or perquisite (cash or kind) given to a resident, if the value exceeds ₹20,000 in a financial year.
Examples:
- A pharma company giving a foreign trip to a doctor
- A company gifting iPhones to top dealers
- Influencers receiving free products to promote
- Sales agents rewarded with holiday packages
These are all considered business perquisites, and the giver must deduct TDS at 10%.
Key Points of Section 194R
| Particulars | Details |
|---|---|
| Applicable TDS Rate | 10% |
| Threshold Limit | ₹20,000 per recipient per financial year |
| Applies To | Benefits in cash, kind, or both |
| Deductor | Person/business providing the benefit |
| Recipient | Resident (dealer, doctor, influencer, etc.) |
| TDS Return Form | Form 26Q |
| TDS Certificate | Form 16A |
Exemptions – When TDS Under 194R is Not Required
- When the total value of benefits is ₹20,000 or less per year
- If given to a government body not involved in business
- If benefit is given to a non-resident (covered under Section 195)
- If it’s a genuine reimbursement with invoice/bill (not a perquisite)
Step-by-Step Guide to Comply With Section 194R
Step 1: Identify the Benefit
Check whether the item or reward being given qualifies as a perquisite or gift in business.
Step 2: Calculate the Value
Add the total value of all benefits given to a recipient during the financial year. If it exceeds ₹20,000, TDS is applicable.
Step 3: Deduct TDS at 10%
Even if the benefit is in kind (e.g., a foreign trip), you must gross-up the value and pay TDS from your side.
Example:
If you give a gift worth ₹50,000, you must deposit ₹5,000 TDS, even if the recipient doesn’t receive any cash.
Step 4: Deposit TDS
Use the appropriate challan and pay to the Income Tax Department before the due date.
Step 5: File Form 26Q
Mention deductee details and value of benefits in your quarterly TDS return.
Step 6: Issue Form 16A
Provide TDS certificate to the recipient so they can claim credit while filing ITR.
What If PAN is Not Available?
If the deductee does not provide a valid PAN, you must deduct TDS at 20% instead of 10%, as per Section 206AA.
Always collect PAN before giving gifts or perquisites to avoid higher TDS liability.
Common Questions Answered
Q. Does GST apply along with TDS under 194R?
Yes, GST may be applicable if the benefit is treated as a “supply.” Check GST rules separately.
Q. Are free gifts to influencers covered?
Yes, if they retain the product. If they return it after review, 194R may not apply.
Q. Can TDS be recovered from recipient?
Yes, or you can bear it and gross-up the value while paying to the department.
Q. Does this apply to salaried employees?
No. Salary-related perks are taxed under salary TDS (Section 192), not 194R.
Related Legal Sections
| Section | Description |
|---|---|
| Section 194R | TDS on perquisites or business benefits |
| Section 206AA | Higher TDS rate if PAN not available |
| Section 234E | Late fee for TDS return |
| Section 271H | Penalty for failure to file TDS return |
| Form 26Q | TDS Return Form |
| Form 16A | TDS Certificate |
Penalties for Not Following Section 194R
| Non-compliance | Penalty |
|---|---|
| Not deducting TDS | Interest @ 1% or 1.5% per month |
| Late deposit of TDS | Additional interest and fees |
| Not filing TDS return | ₹200 per day (max ₹1 lakh) |
| Incorrect return | Penalty under Section 271H |
Practical Tips for Small Businesses
- Maintain a record of all gifts, trips, incentives, and vouchers given
- Always take PAN before giving high-value rewards
- Review benefit transactions quarterly
- Consult with taxgiveindia.com for grossing-up if benefits are in kind
- Avoid lump sum gifting without tax planning
Conclusion
Section 194R is a major step toward transparency in business incentives. If you are offering gifts, trips, vouchers, or non-cash rewards, TDS is now mandatory if value exceeds ₹20,000.
Stay compliant by deducting and filing TDS on time, maintaining proof, and avoiding unnecessary penalties.
For any help in TDS deduction, grossing up, or filing 26Q/16A, connect with taxgiveindia.com.