194R TDS is a 10% deduction that a business must make when it gives a resident a benefit or perquisite linked to that person's business or profession, once the value given in the year crosses ₹20,000. Think of a paint maker sending top dealers on a foreign trip, a drug company paying for a doctor's conference hotel, or a distributor getting a free phone for hitting a sales target.
The section came in from 1 July in FY 2022-23 to make sure such perks are reported and taxed in the receiver's hands. Most of the confusion is practical: how do you deduct tax from a gift that has no cash in it? The answer and the exceptions are below. For the full list of sections, see the TDS rate chart.
Quick facts
Rate
10%Threshold
₹20,000 of benefits to one person in the yearWho deducts
Anyone giving business benefits, except small individuals and HUFsSmall payer exception
Individual or HUF with turnover up to ₹1 crore (business) or ₹50 lakh (profession) in the prior yearValue
Fair market value; purchase price if bought for the purposeHead of income for receiver
Profits and gains of business or professionUnder the 2025 Act
Covered in the TDS table under section 393
194R TDS rate, limit and who must deduct
| Point | Rule |
|---|---|
| Rate | 10% of the value of the benefit |
| Threshold | No TDS if the total value to that person in the year is ₹20,000 or less |
| Receiver | A resident who carries on a business or profession |
| Deductor | Any person, other than an individual or HUF below ₹1 crore business turnover or ₹50 lakh professional receipts in the prior year |
| No PAN | 20% |
| Return and certificate | Form 26Q each quarter, Form 16A to the receiver |
Cash or kind does not matter. A gold coin, a free car, sponsorship of a family holiday or the waiver of a dues amount can all be a benefit, as long as it arises from a business link.
What counts as a benefit under section 194R of the Income Tax Act
- Incentive trips and events: travel, hotels and leisure activities for dealers, agents or doctors. If the event is a genuine dealer meet for product training, the bare costs of the meeting may fall outside, but leisure days added to it are a benefit.
- Gifts for targets: cars, phones, jewellery or appliances given to channel partners.
- Free use of assets: a car or flat given for use without charge.
- Benefits to an employee of a customer: where a doctor working in a hospital gets the benefit, CBDT treats the hospital as the receiver.
Not covered: sales discounts, cash discounts and rebates on what the customer buys, which CBDT Circular 12 of FY 2022-23 keeps out of 194R. Benefits to your own employees are salary perquisites and go under section 192.
Worked example: a benefit given in kind
A tile maker rewards a dealer. In FY 2025-26 the dealer firm gets a Dubai trip for two partners costing ₹1,40,000 and a laptop worth ₹60,000. Total benefit: ₹2,00,000, above ₹20,000.
- TDS at 10%: ₹20,000.
- There is no cash payment to cut it from, so the tile maker must make sure the tax is paid before handing over the benefit.
- It can either ask the dealer to pay ₹20,000 to it, then deposit that amount, or bear the ₹20,000 itself and deposit it.
- The tax is paid into the government account through Challan 281 within the monthly deadline and shown in Form 26Q against the dealer firm's PAN.
- The dealer firm shows ₹2,00,000 as business income and claims credit for ₹20,000.
Valuation follows CBDT guidance: fair market value, or the purchase price when the giver bought the item for this purpose, without GST.
194R income head and tax for the receiver
The receiver adds the value to income under profits and gains of business or profession, as a benefit arising from business under section 28(iv). The 10% is credited against the tax on the full value. If the receiver is in the 30% slab, more tax is due on filing. A dealer who forgets to add the benefit will see it in AIS and may get a mismatch notice.
194R after 1 April 2026
| Point | FY 2025-26 | Tax year 2026-27 |
|---|---|---|
| Law | Section 194R, Income-tax Act, 1961 | TDS table under section 393, Income-tax Act, 2025 |
| Rate and limit | 10% above ₹20,000 | 10% above ₹20,000 |
| Certificate | Form 16A | Form 131 |
Benefits given up to the end of FY 2025-26 are reported under 194R. Benefits from tax year 2026-27 use the new section and payment codes.
Mistakes businesses make with 194R
| Problem | Fix |
|---|---|
| Treating a trade discount as a benefit | Discounts and rebates on sales are outside 194R |
| Releasing the gift before tax is paid | Collect or deposit the 10% first, then hand over |
| Not tracking small gifts over the year | Keep a register per dealer; the ₹20,000 limit is yearly |
| Adding GST to the value | Value the benefit without GST |
Late deposit attracts interest; the rules are on the TDS interest page.
This is general information about TDS on business benefits, not advice for any business. CBDT guidance can change, so run your facts past a chartered accountant and the e-filing portal.
Sources we checked
- Income-tax Act, 1961, section 194R
- CBDT Circular 12 of FY 2022-23
- CBDT Circular 18 of FY 2022-23
- Income-tax Act, 2025, section 393
Frequently asked questions
What is the 194R TDS rate?
The rate is 10% of the value of the benefit or perquisite. If the receiver has no PAN, the rate is 20%.
Is TDS u/s 194R due on perks to my own staff?
No. Perks given to your own employees are part of their salary and are taxed through TDS under section 192, not 194R.
What is the 194R TDS limit?
No tax is deducted when the total value of benefits given to one person in the year is ₹20,000 or less. Above that, TDS applies to the whole value.
Under which head is 194R income taxed?
The receiver shows it as income from business or profession, because it is a benefit arising from a business link under section 28(iv).
How is 194R TDS paid on a gift with no cash?
The giver must ensure the tax is paid before releasing the benefit. It can collect the amount from the receiver or bear it and deposit it itself.
Does 194R apply to discounts given to dealers?
No. Sales discounts, cash discounts and rebates on goods bought are kept out of 194R by CBDT guidance.