TDS on Benefits & Perquisites 2026: Section 393 vs Old 194R

For TY 2026-27, TDS on business or professional benefits and perquisites is covered by Section 393(1), Table 8(iv) of the Income-tax Act, 2025. The familiar legacy reference is Section 194R of the Income-tax Act, 1961. The current rule applies at 10% where the value or aggregate value of qualifying benefits/perquisites exceeds ₹20,000 during the tax year.

Old Section 194R vs current Section 393

When does TDS on a benefit or perquisite apply?

The commercial substance matters more than the label. A company may call something a “dealer incentive”, “reward”, “free trip”, “gift”, “scheme item”, “sample”, “sponsorship” or “complimentary product”, but the finance team must examine whether the benefit arises from the recipient's business or profession and whether the statutory conditions are met.

Common situations requiring review include dealer incentive trips, free consumer durables supplied to distributors, reward products, business-linked gift vouchers, conference sponsorships, free samples retained by doctors or professionals, and non-cash incentives to agents or channel partners. Not every commercial arrangement is automatically covered; the facts, ownership transfer, returnability and the nature of the recipient relationship must be examined.

Who deducts the tax?

The current table places the obligation on a specified person providing the benefit/perquisite. The old Section 194R framework also contained a small-business exclusion for certain individual/HUF providers based on preceding-year turnover/receipts. For a live 2026 transaction, businesses should test the current “specified person” definition under the Income-tax Act, 2025 rather than relying only on an old 194R article or ERP setup.

How should benefits be valued?

Valuation is one of the most practical issues. CBDT guidance issued under the legacy Section 194R framework generally adopted fair market value, with specific practical exceptions such as purchase price where the provider purchased the benefit and normal selling price where the provider manufactured it. Legacy guidance remains useful only to the extent it continues consistently under the new Act and transition framework.

For control purposes, finance teams should maintain a documented valuation basis. If a company gives a product it manufactures, the internal accounting value may not automatically be the tax value. If a product is purchased from a third party, the purchase cost may be relevant under applicable guidance. Document the basis so the TDS working can be defended later.

Benefits wholly or partly in kind

The current Section 393 notes specifically address cases where a benefit is wholly in kind, partly in kind and partly in cash, or otherwise leaves insufficient cash to meet the TDS liability. Before releasing the benefit, the provider must ensure that the required tax has been paid.

In practice, businesses usually deal with this by collecting the tax amount from the recipient before releasing the benefit, adjusting it against another payable amount where legally and contractually possible, or bearing/grossing up the tax after considering the accounting and tax consequences. The method chosen should be documented.

Example 1: dealer incentive trip

A company provides a resident dealer with a qualifying incentive trip valued at ₹80,000. If the Section 393 conditions are met, 10% TDS must be considered on the applicable value. Because the benefit is largely in kind, the company should ensure the tax is funded before the trip benefit is released.

Example 2: benefits crossing the threshold

Assume a distributor receives qualifying benefits of ₹8,000, ₹7,000 and ₹9,000 during the same tax year. The aggregate becomes ₹24,000, so the ₹20,000 threshold is crossed. The provider should apply the statutory rule to the value/aggregate value as required under the current provision rather than examining each benefit in isolation.

Example 3: free product provided for business promotion

A manufacturer supplies a premium product to a dealer under a sales-achievement scheme and ownership passes to the dealer. This requires a Section 393 review because the item may represent a business-linked benefit. The company should identify the applicable valuation, aggregate recipient-wise benefits and ensure TDS before release if required.

Items that need careful factual analysis

• Sales discounts and rebates forming part of ordinary pricing.
• Products given temporarily for demonstration and returned.
• Free samples subject to sector-specific CBDT guidance.
• Conference expenses paid directly by a company.
• Dealer schemes where the reward is linked to purchase or sales volume.
• Benefits provided to employees rather than independent business recipients.
• Benefits provided to non-residents, which require analysis under other provisions.

Finance and accounts checklist

1. Create a separate benefit/perquisite ledger or reporting tag.
2. Identify the actual recipient and confirm residential status.
3. Confirm the benefit arises from business/profession.
4. Aggregate qualifying benefits recipient-wise during the tax year.
5. Document the valuation method.
6. Check whether the provider qualifies as the person responsible to deduct.
7. Ensure TDS is funded before releasing in-kind benefits.
8. Check PAN-related higher-rate rules separately.
9. Do not apply obsolete Section 206AB non-filer logic after its omission from 1 April 2025.
10. Reconcile TDS with the ledger and return before filing.

Common mistakes

• Treating every “gift” as personal and therefore outside TDS.
• Ignoring annual aggregation because each individual item is below ₹20,000.
• Releasing an in-kind benefit before arranging the tax.
• Using accounting cost without documenting the tax valuation basis.
• Applying the rule to non-residents without checking the correct non-resident provision.
• Continuing to use only the old Section 194R reference for TY 2026-27.
• Using Section 206AB non-filer checks even though that provision was omitted from 1 April 2025.

Frequently asked questions

Related guides

• Section 206AB omitted from 1 April 2025
• TDS on advertising and marketing expenditure

Official references

• Income Tax Department — Section 393
• Income Tax Department — TDS guidance