TDS on Benefit or Perquisite – Section 393(1) (194R)

The provisions relating to deduction of tax at source on benefits or perquisites arising from business or profession have been restructured under the Income-tax Act, 2025. The earlier Section 194R of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 8(iv)], effective from 1st April, 2026.

This restructuring continues to bring within the scope of TDS all forms of benefits or perquisites provided in the course of business or profession, whether monetary or non-monetary, thereby ensuring better reporting and tax compliance.

Quick Reference – Section Mapping & Reporting

• New Section (IT Act 2025): Section 393(1)
• Table Reference: Table: Sl. No. 8(iv)
• Nature of Payment: Benefit or perquisite arising from business or profession
• Earlier Section (IT Act 1961): Section 194R
• Return Form: 26Q
• Codes (for return filing):

1. 1033 – Benefit or perquisite
2. 1034 – Benefit/perquisite (Note 6 cases)

• Rate: 10%
• Threshold Limit: ₹20,000

Applicability of TDS under Section 393(1) [Table: Sl. No. 8(iv)]

TDS is required to be deducted where any benefit or perquisite is provided to a resident arising from business or the exercise of a profession. The obligation to deduct tax lies with the person providing such benefit, and the provision applies irrespective of whether the benefit is convertible into money.

• The benefit may arise from:

1. Business relationships
2. Professional services
3. Incentive-based arrangements

• The provision applies only where the recipient is a resident

Scope of Benefit or Perquisite

The section covers a wide range of benefits provided in different forms. The intention is to ensure that all indirect or non-cash advantages are also brought within the tax net.

• Covered forms include:

1. Benefits in cash
2. Benefits in kind
3. Benefits partly in cash and partly in kind

• Typical examples:

1. Gifts, incentives, or rewards
2. Free travel, accommodation, or sponsorship
3. Any business promotion benefit

Time of Deduction

Tax must be deducted before providing the benefit or perquisite to the recipient. This ensures that tax liability is discharged even where the benefit is non-monetary in nature.

• In case of non-cash benefits:

1. The provider must ensure tax is paid before release

• In case of mixed benefits:

1. Cash portion may be used to recover TDS

Rate of TDS

TDS shall be deducted at the rate of 10% on the value of the benefit or perquisite provided. This rate is uniform and applies regardless of the nature of the benefit.

• Where PAN is not furnished:

1. Higher rate provisions may apply as per applicable law

Threshold Limit

TDS is applicable only where the aggregate value of benefits or perquisites provided during the financial year exceeds ₹20,000.

• No deduction is required:

1. If total value does not exceed the threshold

• Threshold is calculated:

1. Per recipient, per financial year

Special Provision – Note 6 (Code 1034 Cases)

Certain situations require additional compliance where benefits are structured in non-cash form.

• Applicable where:

1. Benefit is wholly in kind, or
2. Cash component is insufficient to cover TDS

• In such cases:

1. Tax must be paid by the provider before releasing the benefit

This ensures that TDS compliance is not avoided through structuring of benefits.

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