Section 194R of the Income Tax Act – TDS on Benefits and Perquisites Explained

Section 194R of the Income Tax Act – TDS on Benefits and Perquisites Explained

Section 194R of the Income Tax Act was introduced to plug tax leakages arising from non-cash benefits or perquisites that businesses or professionals receive. This provision mandates a TDS deduction at 10% if the value of perquisites or benefits exceeds ₹20,000 in a financial year. Let’s understand what this section means for you & how to stay compliant.

What Is Section 194R of the Income Tax Act?

As per section 194R of the Income Tax Act, any person providing benefits or perquisites to a resident, arising from a business or profession, must deduct TDS at the rate of 10% if the total value exceeds ₹20,000 in a financial year.

The TDS to be charged under Section 194R is 10%, irrespective of whether the benefit is in cash, kind, or a mix of both. The aim is to bring non-cash perks (like free trips, gold coins, phones, etc.) into the tax net.

Who Needs to Deduct TDS Under Section 194R?

This provision applies to any person (company, individual, HUF, firm) providing such perquisites or benefits, except those whose turnover does not exceed:

• ₹1 crore in case of business, or
• ₹50 lakh in case of profession in the previous financial year.

So, if you're a business gifting a luxury item worth ₹25,000 to a distributor or influencer, you must deduct 10% TDS before handing over the gift.

Example to Understand Section 194R

Let’s say a pharmaceutical company gives doctors free international travel worth ₹1,50,000 as part of a promotional scheme. As per section 194R of the Income Tax Act, for example, this benefit qualifies for TDS at 10%, i.e., ₹15,000 must be deducted by the pharma company and paid to the government.

Even if the doctor pays no money for this trip, it’s a perquisite & tax must be deducted. "

Applicability & Clarifications

The CBDT issued circulars on section 194R of the Income Tax Act to clear several doubts. Here are the highlights:

1. TDS under Section 194R is to be deducted before providing the benefit or perquisite.
2. If the benefit is in kind only, the provider must ensure that the tax is paid before releasing the benefit.
3. This provision applies even if the recipient treats it as a capital receipt.
4. There’s no requirement to check whether the benefit is taxable in the hands of the recipient.

TDS Threshold & Rate

The threshold under Section 194R is ₹20,000 per recipient per financial year.

Once this limit is crossed:

• TDS is mandatory.
• The rate is flat at 10%.
• No surcharge or cess needs to be added.
• No lower TDS certificate or form 15G/15H exemption is allowed under this section. "

Section 194R PDF & Compliance

If you want to go through the complete law, you can check Section 194R of the Income Tax Act PDF from the official Income Tax portal. The act & rules are also explained in layman’s language on portals like TaxGuru & others.

Maintaining proper documentation of benefits given, recording PAN of recipients, & timely filing of TDS returns is crucial to avoid penalties.

Common Scenarios Where Section 194R Applies

1. Free samples are provided to professionals or doctors
2. Holiday packages or foreign tours
3. Gold coins, iPads, and phones gifted as sales incentives
4. Memberships or event tickets given to dealers or clients

In all these cases, if the value crosses ₹20,000, TDS under section 194R must be deducted.

Non-Applicability of Section 194R

• If the benefit is provided to a government entity not engaged in business or profession
• Employees receiving perks are covered under Section 192, not 194R
• If the total benefits provided by you to all parties are below ₹20,000 per head, TDS is not required

Where to Show 194R Income in ITR?

From the recipient's side, the benefit received under section 194R of the Income Tax Act should be reported under "Income from Other Sources" in their ITR.

The recipient should also claim credit for the TDS deducted, just like in salary or contract income.

Final Thoughts

Section 194R of the Income Tax Act is a significant compliance provision for businesses that offer any form of non-monetary perks. Whether it’s a brand promotion, doctor sponsorship, influencer gifting, or dealer rewards, TDS must be accounted for if the value crosses ₹20,000.

⚠️ Ignorance of this provision can lead to penalties and disallowance of expenses under Section 40(a)(ia).

📌 If you need help with understanding TDS or filing returns under Section 194R, feel free to reach out at www.callmyca.com.