Section 194R TDS on Benefits and Perquisites: ₹20,000 Threshold and Gross-Up Rules

10% TDS under Section 194R of the Income-tax Act, 1961 applies to any benefit or perquisite — cash or in-kind — provided to a person in the course of their business or profession, effective 1 July 2022, once the aggregate value of benefits to one recipient crosses ₹20,000 in a financial year. The payer must deduct or "ensure the deduction of" tax before providing the benefit. Where the benefit is in-kind and cannot be recovered from the recipient, the payer bears the TDS on a grossed-up value.

New w.e.f. 01-07-2022: Section 194R brought benefits and perquisites given in the course of a recipient's business or profession into the TDS net for the first time. The ₹20,000 threshold is per recipient per financial year, and in-kind benefits are grossed up.

What the law actually requires

Section 194R was inserted by the Finance Act, 2022 with effect from 1 July 2022. It targets a gap the tax department was already litigating: free samples, dealer incentives, gift vouchers and sponsored trips given to doctors, distributors, retailers and channel partners. These are taxable in the recipient's hands as income arising from business or profession, but historically no TDS was deducted at the point of giving. Section 194R makes the payer responsible for the deduction.

The ₹20,000 threshold and how it is applied

The threshold is per recipient, per financial year, on the aggregate value of benefits. It is not per transaction. A payer who gives a distributor ₹8,000 of vouchers in April, ₹9,000 in July and ₹6,000 in November has crossed ₹20,000 in November — and once crossed, s.194R read with CBDT Circular 12/2022 requires TDS on the aggregate ₹23,000 of benefits provided in that FY to that recipient, not only on the ₹6,000 November tranche. The catch-up TDS on the earlier ₹8k and ₹9k gets deducted / grossed-up at the November trigger. The proviso exempts only cases where the aggregate value never exceeds ₹20,000; once crossed, the whole-year aggregate is the base.

Cash and in-kind: the same rate, different mechanics

Grossing up in-kind benefits

For a non-cash benefit, the payer cannot withhold 10% from the item itself. The payer must deposit the TDS from its own funds — and, per CBDT Circular 12/2022, the TDS the payer bears is itself a benefit to the recipient. Where the payer bears the tax, the value of the benefit is grossed up so that the recipient receives the intended value and the payer accounts for tax on the gross.

Worked math: a company gives a dealer an in-kind benefit intended to be worth ₹90,000. If the payer bears the TDS and grosses up:

• Grossed-up value = ₹90,000 × 100/90 = ₹1,00,000
• TDS @10% = ₹10,000 (borne by the payer)
• Recipient receives the ₹90,000 benefit; the payer deposits ₹10,000

⚠️ — confirm the grossing-up formula and valuation method for non-cash benefits against CBDT Circular 12/2022 and current guidance before applying it to large distributor programmes.

What is NOT covered

• Employee benefits. Perquisites provided to employees are taxed under Section 17(2) and go through salary TDS under Section 192. Section 194R is aimed at non-employee recipients — the section explicitly contemplates benefits provided to persons other than employees.
• Loans and advances. The principal of a loan or advance is not a benefit. Only a concession embedded in it (for example, interest-free credit) can be a benefit in the hands of a non-employee, and the valuation of that concession is a separate exercise.
• Reimbursements of genuine business expenditure. Money spent by a payer on the recipient's behalf that is a true reimbursement of business costs is not a personal benefit. The line between a reimbursement and a benefit is where most disputes arise, and the documentation of the underlying business purpose decides it.

Worked example: MedLabs India Pvt Ltd

MedLabs India Pvt Ltd markets medical devices through a network of dealers and hospitals. In FY 2025-26 it runs a sales-incentive programme:

For the overseas sales meet (in-kind), MedLabs must deposit the TDS itself rather than deduct from the dealer. It reports all 194R deductions in its quarterly Form 26Q and reconciles the grossed-up values in its books.

Practical implications

• This is a payer obligation, not a recipient one. The recipient's failure to declare the benefit does not excuse the payer. A gift that crosses ₹20,000 without TDS is a default the department finds in the payer's audit trail first.
• Free samples are in scope. Medical and FMCG companies that distribute free stock for evaluation have a 194R obligation that many have historically ignored. The value is the cost of the goods provided.
• GST does not replace 194R. A benefit that is subject to GST (for example, free supply attracting a GST liability) is still a benefit under 194R. The two taxes are independent.
• In-kind means out-of-pocket TDS. Budget for the grossed-up TDS in the same quarter as the benefit, not at year-end. Interest under Section 201(1A) and a 30% disallowance under Section 40(a)(ia) follow non-deduction.

FAQ

What is the threshold under Section 194R?
₹20,000 aggregate value of benefits per recipient per financial year. Below that, no deduction is required; once crossed, TDS applies on the value of benefits provided.

Who deducts TDS on a gift voucher — the buyer or the seller?
The payer providing the benefit to the recipient deducts or ensures deduction. A company buying vouchers to give its dealers is the payer under 194R; the shop selling the vouchers is not.

Do employee gifts fall under 194R?
No. Benefits to employees are perquisites under Section 17(2) and flow through salary TDS under Section 192. Section 194R applies to non-employee recipients such as dealers, distributors and professionals.

How is an in-kind benefit valued for TDS?
At its fair market value, per the valuation approach in CBDT Circular 12/2022. For items with no market, valuation may follow the perquisite valuation rules. for unusual items.

If we give 15 dealers ₹5,000 each in a year, do we deduct?
No, provided each recipient's own aggregate stays at or below ₹20,000. The test is per recipient, not aggregate across all recipients.

What if the recipient refuses to give their PAN?
Deduct at 20% under Section 206AA on the value of the benefit. Collect and verify PANs before the first benefit of the year.

Sources

• Section 194R, Income-tax Act 1961 (inserted by Finance Act 2022, w.e.f. 01-07-2022)
• CBDT Circular No. 12/2022 dated 16 June 2022 (clarifications on scope, valuation, threshold and grossing up)
• Sections 17(2), 192 (employee perquisites), 40(a)(ia), 201(1A), 206AA

Use the TDS rate finder to check the section and rate before you give a benefit. For a TDS compliance audit of your company, visit pvtltd.co.

Need help with this?

Our team handles the paperwork. You focus on your business.