If your business hands a doctor, dealer or influencer a freebie worth more than Rs 20,000 in a year, you must deduct 10% tax at source before you give it. That is Section 194R of the Income-tax Act, 1961, in force since 1 July 2022. The tax is on the value of the benefit, not on a cash payment, so the rule catches free samples, sponsored trips, gold coins and free products that earlier slipped through untaxed.
Here is how it plays out in three real situations before we get to the fine print.
A pharmaceutical firm sends Dr. Shrawan Kumar Pathak free medicine samples worth Rs 60,000 over the year. Those samples are a benefit arising from business or profession. Because the value crosses Rs 20,000, the company (the provider) deducts Section 194R TDS of 10% of Rs 60,000 = Rs 6,000 and deposits it against the doctor's PAN. The doctor shows Rs 60,000 as income and claims credit for the Rs 6,000.
A consumer-goods manufacturer rewards a top dealer, Ramesh, with a sponsored trip abroad costing Rs 1,80,000. No cash changes hands, but the trip is a perquisite linked to the dealer's business, so the manufacturer deducts 10% of Rs 1,80,000 = Rs 18,000 under Section 194R. As the benefit is wholly in kind, the manufacturer must ensure tax is paid before the trip is given (see the cash-shortfall fix below).
A brand mails content creator Priya a gadget worth Rs 45,000 to review and keep. It is a benefit from the brand's business, so the brand deducts 10% of Rs 45,000 = Rs 4,500. If the product must be returned after the review, CBDT guidance treats a genuinely returned product as not a benefit, so no TDS arises. Keep is taxed; return is not.
In every case the obligation to deduct sits with the provider, not the recipient.
Section 194R says any person who provides a benefit or perquisite, in cash, in kind, or partly both, that arises from the recipient's business or profession, must deduct 10% tax before providing it. The recipient must be a resident.
The Central Board of Direct Taxes (CBDT) explained how to apply it through Circular No. 12 of 2022 dated 16 June 2022 and Circular No. 18 of 2022 dated 13 September 2022. The deductor does not have to decide whether the benefit is taxable in the recipient's hands; CBDT clarified the deductor simply deducts, and taxability is settled in the recipient's return.
For the recipient, the value of the benefit is business income under Section 28(iv), which taxes “the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession”. The doctor, dealer or influencer adds the freebie's value to taxable income and claims the 10% deducted as TDS credit. Section 194R is regime-neutral: it applies whether the recipient is on the old or new tax regime.
You cannot deduct 10% of a guess. CBDT's valuation rule:
When a benefit is wholly in kind, there is no cash to cut TDS from. CBDT's fix: the provider must ensure the tax has been paid before releasing it. Usually the recipient pays the tax as advance tax and hands the provider a declaration and challan copy; only then is the benefit released. The provider can instead pay the tax, but that payment is itself a further taxable benefit and must be grossed up.
Worked example with figures. Asha runs a tile-distribution business with last year's turnover of Rs 6 crore, so she is not a small individual. In FY 2025-26 she gives sub-dealer Ramesh a Diwali gold coin worth Rs 22,000 and a dealer-conference trip worth Rs 40,000. Total benefit = Rs 62,000, above the threshold, so Asha deducts 10% = Rs 6,200. As both are in kind, Ramesh pays Rs 6,200 as advance tax and gives Asha the challan before collecting them, then declares Rs 62,000 under Section 28(iv) and claims the Rs 6,200 credit.
Section 194R closes a gap where high-value freebies, dealer junkets and sponsored trips for doctors went untaxed. To probe whether a public body or public-sector entity hands out such benefits without deducting tax, use the RTI Act, 2005: frame the query with the AI RTI Drafter, watch the 30-day clock with the Timeline Tracker, test an evasive reply with the PIO Reply Checker, and escalate with the First Appeal Builder. For strategy, see The RTI Playbook.
No. A genuine sales discount, cash discount or rebate given on a sale is not a benefit or perquisite under Section 194R, so no TDS is deducted on it. The section targets extra incentives like free goods, trips and gifts, not price reductions on the sale itself.
For the whole financial year, per recipient. You add up every benefit given to one person across the year; once the aggregate crosses Rs 20,000, TDS at 10% applies on the value of the benefit.
The provider of the samples deducts under Section 194R. CBDT clarified that where samples go to a hospital for its employee-doctors, TDS is on the hospital; for a consultant doctor, the original provider may deduct directly from the consultant.
Not if you are an individual or HUF whose business turnover did not exceed Rs 1 crore, or whose professional gross receipts did not exceed Rs 50 lakh, in the preceding financial year. Above those limits, the obligation applies.
The provider must ensure tax is paid before releasing the benefit. Usually the recipient pays it as advance tax and gives the provider a challan and declaration. The provider can instead pay the tax, but that itself becomes a taxable benefit that must be grossed up.
At fair market value, except that if the provider purchased the item the purchase price is used, and if the provider manufactured it the price charged to customers is used. GST is excluded from the value for TDS purposes.
No. Benefits to your own employees are taxed as salary perquisites under Section 192. Section 194R covers benefits arising from the recipient's own business or profession, such as to dealers, agents, professionals and influencers.