TDS on Benefit or Perquisites

Prepared by Vasantha kumar P


Section 194R, which relates to the deduction of tax on benefits or perquisites in relation of enterprises or professions, was added by the Finance Act of 2022. Businesses, companies, or entities frequently offer a variety of perks and incentives to its distributors, channel partners, agents, or dealers in order to encourage and incentivize them to support continued business growth.

Purpose of Section 194R:

The new Section 194R was created with the intention of plugging potential tax revenue leaks (tax evasions) in enterprises and professions. A few businesses used Section 37 of the Income-tax Act of 1961 to claim expenses for business promotions while providing various gifts, benefits, perquisites, or benefits to their distributors, dealers, or channel partners (upon fulfilment of agreement conditions or in accordance with prevalent norms/traditional practise followed over the years by the business entity).

For E.g.:

An electronics manufacturing company gave LCD televisions as incentives to those channel partners who achieved a particular revenue target. The company included these as expenses in its profit and loss account and claimed an Income Tax benefit.

 Because this incentive is in kind rather than cash, the recipients do not include it in their income tax return. As a result, inaccurate income information is provided. Such an incentive or bonus in kind ought to ideally be reported as income under the 1961 Income-tax Act (ITA).

According to Section 28(iv) of the ITA, any benefit or perquisites received from a business or profession, whether convertible into money or not, must be reported as business income in the hands of the receiver.

Now, a company is obligated to deduct a TDS under Section 194R if it offers its distributors or channel partners any such perks or incentives, whether partially in cash or in kind. The individual giving the benefit or perquisite must pay TDS on the value of such benefit or perquisites out of his own pocket if the benefit is entirely in kind.

Therefore, Section 194R’s goal is to increase tax revenue and close any loopholes for tax evasion.

However, if an Individual or HUF’s total sales, turnover, or gross earnings do not exceed Rs. 1 crore for business or Rs. 50 lakhs for profession, then this provision does not apply to them.

Tax Deducted:

Before giving the resident person a benefit or perquisites, the tax must be deducted. The process of giving a benefit or a perquisites to a resident recipient may go through multiple stages. The stage at which tax deductions must be made cannot be governed by a single rule. It must be understood in light of the specific benefit or perquisites that the recipient is receiving. It must be assured that tax is deducted before the point of “providing” a benefit or perquisites is reached.

Deductee for Section 194R:

According to this provision, tax must be deducted from any benefit or perquisites given to a resident person if it results from their professional or business activities.

However, the following circumstances prohibit the tax from being deducted in accordance with this provision:

  1. The tax will be deducted under Section 192 if there is an employer-employee relationship.
  2. If the beneficiary is a non-resident, Section 195 must be used to deduct the tax.
  3. If the benefits or perquisites do not have a connection with the business or profession of the resident recipient/deductee.
  4. If benefits or perquisites are provided to a customer who does not engage in business or exercise of a profession.

Threshold Limit:

If the value of all benefits or perquisites offered or projected to be offered throughout the financial year exceeds INR 20,000, that is the threshold level for this provision. If the benefits or perquisites exceed 20,000/- in such circumstances, the full amount will be considered, and TDS will be deducted.

Rate of TDS:

The person giving the benefit/perquisites must make sure that the aggregate value of “such benefit or perquisites” has been deducted by the TDS rate of 10%.

The tax will be deducted at the rate specified under Section 206AA if the deductee fails to give the deductor his PAN. The tax will be deducted at the rate outlined in Section 206AB, but, if such a deductee hasn’t provided the return of income for a predetermined amount of time. The tax shall be deducted at the rates stated in sections 206AA or 206AB, whichever is greater, where both provisions of sections 206AA and 206AB are applicable, i.e., the deductee has not supplied his PAN to the deductor or his return of income for the designated period.

This provision is applicable with the effect from 01-07-2022 and the benefits/ perquisites which has been given before 30-06-2022 would not be subjected to tax deduction under this provision.

Clarification Provided:

At some situations clarification is required whether TDS should be deducted in these scenarios:

  1. Cash or kind or Both – All covered:

It is made clear that the perquisite or benefit covered by Section 194R may be in kind, cash, or a combination of both. Clarifies the legal position regarding the application of Section 194R to benefits or perquisites received in cash.

  1. Capital Asset:

The type of asset provided as a benefit or perquisite is irrelevant, and even capital assets provided in these ways are covered under Section 194R. For securing the payer’s TDS liability, CBDT expressly uses the wording “of whatever sort” on benefits or perquisites.

  1. Sale Discount, Cash Discount & Rebate:

By removing sales discounts, cash discounts, and rebates from Section 194R’s scope because including them would cause problems for sellers, CBDT gives customers a reprieve on these concessions. Despite being connected to the sale or purchase, the CBDT does indicate that these are benefits or perquisites.

  1. Incentives other than Sales Discount, Cash Discount & Rebates:

When a vendor offers incentives in the form of a car, TV, computer, gold coin, mobile phone, sponsored trip, free ticket, or free samples of medication other than a discount or rebate Section 194R shall apply.

  1. User of Benefit or Perquisites:

The provisions of Section 194R must be followed, even if they can be used by the recipient entity’s owner, director, employee, or their family who may not be engaged in business or practising a profession in their individual capacity.

For Hospitals & Doctors Receiving Samples:

  • According to CBDT, if doctors receive free samples of medications while working for a hospital, Section 194R would apply to the distribution of those samples to the facility. The hospital, as an employer, may recognise these samples as taxable benefits for staff members and withhold tax in accordance with Section 192. In these situations, it is important to consider the hospital while determining the Rs. 20,000 threshold.


  • TDS should ideally be applied to the hospital first in cases where doctors obtaining free samples while serving as consultants for the hospital also have to pay taxes under Section 194R. To solve this issue, CBDT makes it clear that the original benefit or perquisite provider may instead immediately deduct tax under Section 194R with reference to the consulting doctor as a receiver.


  • If the benefit or perquisite is given to a government body, such as a government hospital, which is not engaged in business or profession, Section 194R shall not apply.


  1. On Valuation:

With the following exclusions, the general rule is that benefits and perquisites must be valued according to fair market value:


  • Provider purchased it before providing it – purchase price.


  • Provider manufactured it – price charged to customers.
  1. For Social Media Influencers:

Benefit or perquisites in the form of a gift given to a social media influencer that is returned to the giver after being used for the influencer’s services is exempt from TDS. As a result, TDS will apply to the products the influencer keeps.

On reimbursement of Out-of-Pocket Expenses:

  • Typically, a consultant’s expenses are business expenses that can be deducted from the income he receives from the client. Travel expenses incurred by the consultant that are covered by the client are considered a benefit or perquisites given by the client to the consultant.


  • The name under which an invoice for out-of-pocket costs is made will determine whether Section 194R is applicable. Reimbursement would not be subject to TDS if the invoice was issued in the customer’s name, paid by the consultant, then repaid by the client.


  • If the invoice is not in the name of the client and the payment is made by the client directly or is reimbursed to the consultant then it is benefit or perquisite provided by the client to the consultant on which Section 194R applies.


Issues and Challenges:


  • Scope of the term ‘benefit’ or ‘perquisites’-

The Act does not define the terms “benefit” or “perquisite.” To prevent future litigation over interpretational issues, the necessary clarifications should be made in this regard.


  • Lower withholding tax certificate –

There is no option to get a certificate showing a lower or zero withholding tax.


  • Unutilized benefit or perquisite –

There may be instances where the perquisites or benefit is given in the form of an online coupon, scratch card, or another item that has an expiration date or other requirements that must be met in order to receive it. However, in some circumstances, this advantage might not be used or obtained. For such situations where the deductee does not claim such advantage, no carve-out or remedy has been granted.


  • Free Samples –

The recipient would face excessive problems if tax deductions were required for free samples, which are typically provided by the provider to promote sales. These are sometimes even labelled “not for sale.”



The recently added part has increased TDS compliance for firms even more. Future legal disputes will arise as a result of the difficulty in defining benefits and perquisites, determining their fair worth, and adhering to the related compliances. The creation of section 194R appears to run counter to the government’s goal of encouraging business accessibility.

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