Section 194R TDS on Business Perquisites: 10% Rate
Reviewed by CA Nikhil Gupta · Last reviewed 17 June 2026
When a pharmaceutical company gives free product samples to doctors, or a brand sponsors an influencer's holiday in exchange for promotional posts, the value of that benefit is taxable income for the recipient - and since 2022, the person giving the benefit must deduct TDS on it under Section 194R.
What is Section 194R?
Section 194R, introduced by the Finance Act 2022 effective 1 July 2022, requires any person carrying on a business or profession to deduct TDS at 10% on the value of any benefit or perquisite (whether convertible into money or not) provided to a resident in connection with that business or profession.
The provision was introduced to plug a long-standing gap: businesses were giving valuable non-cash benefits - free samples, sponsored trips, gift vouchers, cars, gadgets - to doctors, dealers, distributors, and social media influencers, and these recipients were often not declaring the value as income.
Who Deducts and Who is Covered
| Particulars | Details |
|---|---|
| TDS Rate | 10% of the value or aggregate value of the benefit/perquisite |
| Threshold | Exempt if aggregate value to a single person does not exceed Rs 20,000 in the financial year |
| Who deducts | Any person (other than individuals/HUFs with turnover below Rs 1 crore for business or Rs 50 lakh for profession) providing the benefit |
| Who is covered | Any resident person carrying on business or profession who receives the benefit |
| Cash component required? | No - TDS applies even if the entire benefit is in kind |
Common Examples Covered
- Free medicine samples given by pharma companies to doctors
- Sponsored trips, hotel stays, and event tickets given to dealers, distributors, or influencers
- Gift vouchers, gold coins, electronics given as incentives for achieving sales targets
- Free products given to social media influencers for reviews, where the product is not returned
- Cars or other assets given to dealers as incentives, where ownership is transferred
How TDS is Paid on a Non-Cash Benefit
This is the most practically confusing part of Section 194R: if the entire benefit is in kind (say, a free car worth Rs 5 lakh), there's no cash from which to deduct 10% TDS. The law provides two options:
- The person providing the benefit can pay the TDS amount themselves (grossing up), in which case the TDS is paid before releasing the benefit
- The recipient can pay the TDS amount in cash to the person providing the benefit, who then deposits it with the government
In practice, most businesses choose to gross up and bear the TDS cost themselves as part of the promotional expense, since asking a dealer or doctor to pay cash TDS on a 'free' gift is commercially awkward.
Valuation of Benefits
The value of the benefit is generally its fair market value. If the business itself purchased the item (e.g., bought a car to give to a dealer), the purchase price is typically taken as the value. If the business manufactures the item (e.g., a pharma company giving away its own product samples), the value is based on the price at which the business sells that item to its customers, not the cost of production.
Impact on Recipients
From the recipient's side, the value of the benefit received (as reflected in Form 26AS against the TDS deducted under Section 194R) must be reported as business or professional income, and is taxable at the recipient's applicable slab rate. A doctor receiving free samples worth Rs 2 lakh in a year must include that Rs 2 lakh as professional income, separate from consultation fees.
Exclusions from Section 194R
- Benefits provided to non-residents are not covered (covered under other TDS/withholding provisions if applicable)
- Sales discounts, cash discounts, and rebates allowed to customers are excluded
- Benefits below the Rs 20,000 aggregate annual threshold per recipient
Business benefits/perquisites — TDS and recipient tax are separate tests
Decision table
| Situation | 2026 treatment / control | Why it matters |
|---|---|---|
| Aggregate benefit within threshold | No withholding under this provision if statutory threshold is not exceeded. | Aggregate per recipient for the year. |
| Cash/convertible benefit | Deduct tax under current rule where applicable. | Value the benefit correctly. |
| Wholly in-kind benefit | Provider must ensure tax is paid before release. | No cash exists to deduct from. |
| Recipient disputes taxability | TDS and final assessment are separate. | Preserve contract/business nexus and valuation. |
Worked practical example
A distributor receives an overseas trip worth ₹1.2 lakh as a sales incentive. The provider should not ignore withholding because nothing was paid in cash; it must apply the in-kind rule and valuation evidence.
Evidence checklist
- scheme/contract
- recipient-wise benefit ledger
- valuation support
- TDS challan/certificate
- recipient acknowledgement
Primary-source checks: Income Tax Department TDS rates · Income-tax Act, 2025
Use this with the original article: this module tightens current-law, edge-case and evidence controls; it does not replace the article's existing explanation or your fact-specific professional review.
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