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How to Invest in SIP A Beginner's Guide
In summary
Section 194R dealt with TDS on benefits or perquisites given to a resident because of business or professional activity. From 1 April 2026, the corresponding rule comes under Section 393 of the Income-tax Act, 2025.
Key points include:
- TDS rate remains 10%.
- Annual threshold remains Rs. 20,000.
- Threshold applies separately to each recipient.
- Cash and non-cash benefits can qualify.
- Free samples can come under TDS.
- Sales discounts receive specific relief.
- In-kind benefits need tax before release.
Once the Rs. 20,000 threshold is crossed, TDS applies to the full covered value. The Rs. 20,000 is not deducted before calculating TDS.
What is Section 194R?
Section 194R required Tax Deducted at Source (TDS) on certain benefits or perquisites connected with a resident's business or profession.
The rule applied when a person gave such a benefit to a resident. The benefit could be in cash, in kind, or partly in both.
The Central Board of Direct Taxes (CBDT) issued Circular No. 12/2022 dated 16 June 2022 and Circular No. 18/2022 dated 13 September 2022. These circulars explained matters such as free samples, reimbursements, valuation, loan waivers, and benefits given in kind.
What changed from 1 April 2026?
From 1 April 2026, the corresponding TDS rule is covered under Section 393(1), Table serial number 8(iv), of the Income-tax Act, 2025.
The main figures remain unchanged. The TDS rate is 10%, and the annual threshold is Rs. 20,000 per recipient.
Transactions up to 31 March 2026 continue to follow the Income-tax Act, 1961. Transactions from 1 April 2026 use the matching provision under the Income-tax Act, 2025.
Regulatory context: Income Tax Department transition guidance confirms that transactions from 1 April 2026 should use the corresponding provision under the new Act.
When does the 10% TDS rule apply?
The 10% TDS rule applies when a qualifying business or professional benefit is given to a resident and the yearly threshold is crossed.
The main conditions are:
| Condition | Current position |
| Recipient | Resident |
| Benefit | Linked to business or profession |
| TDS rate | 10% |
| Threshold | Rs. 20,000 per recipient |
| Form | Cash, kind, or both |
| Current provision | Section 393(1), Table 8(iv) |
The provider does not need to first decide whether the benefit will finally be taxable in the recipient's hands. However, the benefit must arise from the recipient's business or profession.
Who has to deduct TDS?
The person providing the qualifying benefit is responsible for meeting the TDS requirement.
Under the current law, this responsibility applies to a specified person. In simple terms, it generally includes businesses and professionals covered by the provision.
For individuals and Hindu Undivided Families (HUFs), the previous tax-year limits are:
- Business turnover above Rs. 1 crore
- Professional receipts above Rs. 50 lakh
An individual or HUF below the relevant limit does not come under this specified-person requirement.
How does the Rs. 20,000 threshold work?
The Rs. 20,000 threshold is checked separately for each recipient during the tax year.
If the total value of qualifying benefits given to one recipient crosses Rs. 20,000, TDS applies to the full covered amount. It does not apply only to the amount above Rs. 20,000.
For example, Ravi runs a distribution business in Jaipur. A supplier gives him qualifying business incentives worth Rs. 50,000 during the year.
TDS = Rs. 50,000 × 10%
TDS = Rs. 5,000
The Rs. 20,000 amount only decides whether the TDS rule applies.
Which benefits can come under Section 194R?
Section 194R can cover different business or professional benefits that are separate from normal sales discounts.
CBDT guidance gives examples such as:
- Cars, televisions, computers, or mobile phones
- Gold coins and similar incentives
- Sponsored trips for meeting business targets
- Free event tickets
- Free medicine samples given to medical practitioners
Ordinary sales discounts, cash discounts, and rebates receive specific relief under CBDT Circular No. 12/2022.
However, free samples and separate promotional incentives are treated differently. They can come under the TDS rule when the other conditions and threshold are met.
How is the value of a benefit calculated?
A benefit is generally valued at its fair market value unless a specific CBDT rule provides another method.
CBDT Circular No. 12/2022 gives the following main rules:
- If the provider buys the benefit, use the purchase price.
- If the provider manufactures the item, use the price charged to customers.
- In other cases, fair market value generally applies.
- GST is excluded when valuing the benefit for this TDS purpose.
This means a manufacturer's accounting cost is not always used for valuation.
What if the benefit is given in kind?
If the benefit is fully in kind, the provider must make sure the required tax has been paid before giving the benefit to the recipient.
The same rule applies when the benefit is partly in cash and partly in kind, but the cash part is not enough to cover the TDS.
The recipient can pay the required amount as advance tax and give the provider a declaration and challan copy. The provider can use this proof for TDS reporting.
The provider may also bear the tax, subject to the applicable grossing-up rules.
What happens if TDS is not deducted?
Failure to deduct or deposit TDS can lead to interest and other tax consequences.
Under the current framework, delayed deduction generally attracts interest at 1% per month or part of a month for the relevant period. TDS deducted but deposited late can attract interest at 1.5% per month or part of a month, subject to the applicable rules.
Other consequences may also apply depending on the facts.
Before giving a benefit, a business should check the recipient, type of benefit, value, threshold, and TDS payment method.
Conclusion
Section 194R introduced a 10% TDS rule for certain business and professional benefits under the Income-tax Act, 1961. The Rs. 20,000 threshold determines when the rule applies.
From 1 April 2026, the corresponding current provision is Section 393(1), Table serial number 8(iv), of the Income-tax Act, 2025. The 10% rate and Rs. 20,000 thresholds continue under the current framework. If you are considering investing in mutual funds, you can visit the Bajaj Broking website where you can explore more than
Last reviewed: October 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
Articles and Insights
Frequently Asked Questions
Expenses and benefits
Thresholds and debt
Benefits provided in kind
What is reimbursement of expenses under Section 194R?
A reimbursement can come under Section 194R when an expense is actually the service provider's responsibility but another person pays it. CBDT Circular No. 18/2022 also explains cases involving invoices, pure-agent arrangements, and reimbursements included in another payment on which TDS has already been deducted. The payment arrangement must therefore be checked before treating every reimbursement as a separate benefit.
Is section 194R applicable to free samples?
Yes. Free samples can come under Section 194R when they are connected with the recipient's business or profession and the threshold is crossed. CBDT Circular No. 12/2022 gives free medicine samples to medical practitioners as an example. This treatment is different from ordinary sales discounts, cash discounts, rebates, and certain quantity-based sales offers.
What are the deductions under Section 194R of the Income Tax Act?
Section 194R deals with Tax Deducted at Source. It does not provide an income-tax deduction that the recipient can claim. The TDS rate is 10% when the total qualifying benefit crosses Rs. 20,000 for a recipient during the year. From 1 April 2026, the corresponding rule appears under Section 393(1), Table serial number 8(iv).
Is 194R applicable to bad debts?
There is no rule saying that every bad-debt write-off automatically attracts Section 194R. Whether a debt waiver becomes a benefit depends on the facts. CBDT Circular No. 18/2022 gives specific relief for certain one-time loan settlements or waivers by specified banks, financial institutions, NBFCs, and certain other listed entities.
When does the Rs. 20,000 threshold apply for deducting TDS under Section 194R?
The Rs. 20,000 threshold is checked against the total qualifying benefits given to the same recipient during the tax year. Once the total crosses Rs. 20,000, the 10% TDS applies to the full covered value under the current provision. The Rs. 20,000 is not subtracted before calculating TDS.
Who is responsible for paying the tax when a benefit or perquisite is provided entirely in kind under Section 194R?
The provider must make sure the required tax has been paid before giving a fully in-kind benefit. The recipient can pay the amount as advance tax and give the provider a declaration and payment challan. The provider can also bear the tax, subject to the applicable grossing-up rules.
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