Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194R of the Income-tax Act governs TDS on benefits and perquisites.
This guide sets out the TDS rate under Section 194R, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194R?
Section 194R requires TDS on any benefit or perquisite (in cash or kind) provided to a resident arising from business or profession.
Rate, threshold and who deducts
| Nature of payment | Benefits and perquisites |
|---|---|
| TDS rate | 10% of the value of the benefit |
| Threshold | ₹20,000 value in a financial year |
| Who deducts (deductor) | Person providing the benefit |
| Whose income (deductee) | Recipient (business/professional) |
| Time of deduction | Before providing the benefit |
Key points
- Covers free samples, sponsored trips, and similar business incentives above the threshold.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on benefits and perquisites before providing the benefit.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194R appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Are business gifts covered by 194R?
Benefits/perquisites over ₹20,000 a year linked to a business relationship generally attract 194R.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.