Compliance guide · Section 194R · Section 393
Ten per cent TDS on benefits given in the course of business, once cumulative value crosses ₹20,000 per recipient per financial year. Here is how it works, and where companies get caught.
Reviewed September 2026. Not tax advice.
Section 194R was introduced by the Finance Act 2022 and took effect on 1 July 2022. It has since been consolidated into Section 393 of the Income Tax Act 2025, so you will see both references in circulation.
Before it existed, a company could give a distributor a foreign trip, a gold coin or a stack of gift vouchers, claim the cost as a business promotion expense, and the recipient would frequently never declare it as income. The section closes that gap by making the giver responsible for deducting and depositing tax on the benefit.
| Test | Condition |
|---|---|
| Nature of benefit | Any benefit or perquisite, in cash, in kind, or partly both, arising from business or profession. |
| Threshold | Aggregate value exceeds ₹20,000 for a single recipient during the financial year. |
| Recipient | A resident. Non-residents fall outside this section. |
| Giver | Any business or profession. Individuals and HUFs only where turnover exceeded ₹1 crore, or professional receipts exceeded ₹50 lakh, in the preceding year. |
| Rate | 10% of the value of the benefit. |
The ₹20,000 threshold is annual and cumulative per recipient, not per gift. A ₹5,000 Diwali voucher in October and an ₹18,000 target bonus in March total ₹23,000 — and TDS becomes due on the full ₹23,000, not on the ₹3,000 excess.
Finance teams budget for the headline rate and stop there. A missed deduction triggers four separate consequences, and they compound.
| TDS not deducted, s194R | ₹2,300 |
| Penalty equal to the tax, s271C | ₹2,300 |
| Interest at 1% per month, s201(1A) | ₹276 |
| Tax on 30% expense disallowed, s40(a)(ia) | ₹1,737 |
| Total exposure | ₹6,613 · 29% |
Twenty-nine per cent of the reward, on a benefit you gave away for goodwill. And because the benefit is entirely in kind there is no cash to withhold from, so the original ₹2,300 also comes out of your own funds unless you collected it before releasing the voucher.
Two honest qualifications. The s271C penalty is subject to a reasonable-cause defence under s273B and is not automatic — the Supreme Court confirmed in US Technologies (2023) that it attaches to failure to deduct rather than to late remittance. And the disallowance can be reclaimed in a later year once the TDS is paid. Neither makes the exposure theoretical.
Marketing runs the Diwali program, sales runs the target scheme, and neither sees the other. Nobody holds a per-recipient cumulative figure until the auditor builds one.
Gift vouchers are named explicitly in the guidance. A stack of small vouchers is exactly the pattern the section was written to catch.
Once the voucher is in the dealer’s hands, you have lost the chance to collect the tax from them. The cost is now yours.
Employees are covered by a different regime entirely, with a different threshold. Mixing the two produces wrong answers in both directions.
194R has genuine edge cases — valuation of benefits in kind, sales discounts and rebates, capital assets, and reimbursements — that are outside the scope of this page. Have your chartered accountant review your specific programs.
Work out your own threshold position · How NeuroPX tracks it
NeuroPX keeps a running per-recipient total across every scheme and surfaces the breach in the approval step, while you can still do something about it.