194R TDS – Benefits & Perquisites, Rate & Deduction Rules

Key Takeaways
 

1. Section 194R applies to business-related gifts and perks, requiring the provider to deduct 10% TDS before giving any benefit.
    
2. TDS under Section 194R applies only when total benefits exceed ₹20,000 in a year and is deducted on the full value.
    
3. TDS deducted under Section 194R is adjustable while filing ITR, and any excess amount can be claimed as a refund.
    

Ever received a business gift or freebie and wondered if tax applies? Section 194R answers that question by taxing business-related perks at the source, ensuring gifts, incentives, and non-cash benefits don’t quietly escape the tax net.

Section 194R works like a security check for business freebies. Whenever a resident receives benefits or perquisites linked to business or profession, tax is checked before the benefit is handed over. A flat 10% TDS keeps everything transparent.

Let’s say A distributor receives free products worth ₹15,000 and later a sponsored trip worth ₹10,000 in the same year. Since total benefits reach ₹25,000, Section 194R applies, and ₹2,500 TDS is deducted on the full value.

What Is Section 194R TDS? 

Section 194R brings business freebies under the tax lens. Whenever a resident receives any benefit or perquisite, such as gifts, incentives, or non-cash rewards, arising from business or professional activities, tax must be handled before it is given. The person providing the benefit is required to deduct 10% TDS on the value of that benefit, even if no money is paid in cash. This rule applies to perks given in kind as well. Effective from 1 July 2022, Section 194R ensures business benefits are properly reported and taxed.

194R TDS Applicability: When Does Section 194R Apply?

Section 194R of the Income Tax Act was introduced to ensure that business-related perks and benefits do not go untaxed. Whenever a person provides a resident with any benefit or perquisite, whether in cash or kind, arising from the recipient’s business or profession, TDS obligations may apply. 

This section focuses on non-salary benefits that were earlier slipping through the tax net, such as gifts, incentives, or free products.

Key conditions for Section 194R to apply:

Section 194R applies when businesses or professionals provide benefits or perks in the course of business, making it important to understand the exact conditions that trigger TDS liability.

• The provider can be any person, including individuals or HUFs, subject to prescribed turnover limits.
• The recipient must be a resident Indian.
• The benefit or perquisite must arise from the recipient’s business or professional activity.
• The total value of benefits given to a recipient must exceed ₹20,000 in a financial year.
• TDS is deducted at 10%, or 20% if PAN is not provided.
• Tax must be deducted before the benefit is provided, even if it is non-cash.

Section 194R ensures transparency by taxing business perks at the right time, making both providers and recipients more accountable.

Deductor under Section 194R

Under Section 194R, the responsibility to deduct TDS lies with the person who provides a business-related benefit or perquisite to a resident. The law makes it clear that taxes must be taken care of before the benefit is actually given, ensuring that such perks are taxed at the source itself.

Key points to understand who qualifies as a deductor:

• Any person providing a benefit or perquisite, whether convertible into money or not, is treated as the deductor.
• The deductor can be a resident or a non-resident.
• In the case of a company, the company itself, including its principal officer, is considered responsible.
• TDS must be deducted before providing the benefit or perquisite to the resident recipient.
• This section does not apply to an individual or HUF if their turnover in the preceding financial year does not exceed ₹1 crore (business) or ₹50,00,000 (profession).

Section 194R places the compliance burden on benefit providers, while giving small businesses and professionals relief through turnover-based exemptions.

194R TDS Rate and Limit Explained

Section 194R ensures that business perks do not slip under the tax radar. Whenever a resident receives benefits or perquisites linked to business or professional activity, the provider must check two things carefully: the rate and the threshold.

Rate of TDS under Section 194R

• The standard TDS rate is 10% of the value or total value of the benefit.
• This applies to cash and non-cash benefits alike, such as gifts, free samples, sponsored trips, or use of company assets.
• If the recipient does not provide PAN, the rate jumps to 20%, making PAN disclosure crucial.

Threshold Limit to Watch

• TDS applies only when the total value of benefits exceeds ₹20,000 in a financial year for a single recipient.
• Once this limit is crossed, TDS is deducted on the full amount, not just the excess.
   

If a distributor receives free goods worth ₹15,000 and later a sponsored trip worth ₹10,000, the total becomes ₹25,000. Since the limit is crossed, TDS is deducted on the entire ₹25,000.

Section 194R turns business freebies into a clearly taxable event, leaving no room for surprises later.

Is 194R TDS Refundable or Not?

Yes, TDS deducted under Section 194R is refundable if it is more than your actual tax liability for the year. This TDS works like an advance tax payment. When filing your ITR, you must report the full value of the benefit as income under the applicable head. The deducted TDS can then be claimed as a credit, and any excess is refunded.

Conclusion

Section 194R TDS makes sure that business gifts and freebies are taxed properly and on time. If you receive any benefit linked to your business or profession, it must be reported as income. The person giving the benefit must deduct tax before handing it over. The good part is that this TDS is not final and can be claimed back while filing your ITR if extra tax is deducted. A clear understanding of Section 194R helps you stay compliant, avoid tax notices, and prevent last-minute surprises during return filing.

FAQs

Q: What is the rate of TDS on influencer services?

Payments to resident influencers attract TDS under Section 194J at 10% if total payments exceed ₹50,000 in a financial year, and the payer is responsible for deducting and depositing the tax.

Q: How are foreign company ESOPs taxed for an Indian resident?

If the foreign company is unlisted in India, gains from ESOPs are taxable in India, and if shares are sold within three years, the profit is treated as short-term capital gains and taxed as per slab rates.

Q: Is TDS applicable to parking reimbursement paid to a consultant?

No, genuine out-of-pocket reimbursements supported by bills have no income or profit element and therefore do not attract TDS, as TDS applies only to fees or income, not pure cost reimbursements.

Q: Should a monetary gift received from a spouse be declared in the ITR?
Yes, gifts received from a spouse are fully tax-exempt under Section 56(2) and may be disclosed as exempt income in the ITR for transparency, which helps explain the source if questioned later.

Q: What is Section 194R TDS in simple terms?

Section 194R requires a 10% TDS deduction on business-related gifts or perks given to a resident once their total value exceeds ₹20,000 in a year, with the TDS adjustable or refundable while filing the ITR.