CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194R — Tax Deduction on Benefit or Perquisite in Respect of Business or Profession
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance Act, 2022 (w.e.f. 1 July 2022); new and litigation-prone.
Finance Act, 2026: No amendment.
Mechanism: A person providing a resident a benefit/perquisite (cash or kind) arising from the recipient's business/profession deducts 10% where the aggregate exceeds ₹20,000 a year; for benefits in kind, tax must be ensured before release.
Litigation profile: New. The reach of 'benefit or perquisite' and the CBDT positions are untested — the candour rule applies.
A. SECTION COMMENTARY
Section 194R, inserted by the Finance Act, 2022 with effect from 1 July 2022, requires any person responsible for providing to a resident any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession by that resident, to deduct tax at ten per cent of the value or aggregate value of the benefit/perquisite, where the aggregate exceeds ₹20,000 in a financial year. It is the collection counterpart of the charge in section 28(iv) (value of any benefit or perquisite arising from business/profession) and was designed to capture the large universe of non-cash business inducements — free samples, sponsored trips, gifts, and the like — that had previously escaped both reporting and, often, taxation.
Filling the gap left by Mahindra & Mahindra
The provision must be read against the Supreme Court's decision in Mahindra & Mahindra, which held that section 28(iv) is confined to benefits received in a form other than money and does not reach a benefit received as money (there, a loan waiver). Section 194R deliberately casts a wider net: by the express words 'whether convertible into money or not' and the proviso dealing with benefits wholly or partly in kind, it requires deduction whether the benefit is in cash or in kind, and the CBDT has clarified (Circular No. 12 of 2022, supplemented by Circular No. 18 of 2022) that the deductor need not himself determine whether the benefit is taxable under section 28(iv) in the recipient's hands.
Benefits in kind — ensuring tax before release
Where the benefit is wholly in kind, or partly in cash insufficient to meet the tax on the whole, the proviso requires the provider to ensure that tax has been paid in respect of the benefit before releasing it — the same safeguard found in sections 194B/194BA/194S. The CBDT guidelines address recurring practical questions (dealer conferences, free samples, capital assets given as benefits, the valuation basis), though several of those positions are themselves contestable and likely to be litigated.
A new and litigation-prone provision — candour
Section 194R is recent and, although heavily commented upon, has not yet produced a settled body of judicial authority on its own terms; the live controversies (the reach of 'benefit or perquisite arising from business', valuation, and the validity of particular CBDT positions) remain open. In candour, it is applied from its terms read with section 28(iv), Mahindra & Mahindra and the CBDT circulars.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194R. (1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:
Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:
Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:
Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.
(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.
Explanation 1.—For the purposes of this section, the expression "person responsible for providing" means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof. Explanation 2.— For the removal of doubts, it is clarified that the provisions of sub-section (1) shall apply to any benefit or perquisite, whether in cash or in kind or partly in cash and partly in kind.
C. AUTHORITIES
The position is framed by the section 28(iv) charge, the Supreme Court's Mahindra & Mahindra decision and the CBDT guidelines. The candour rule is observed — section 194R itself is largely untested.
Cluster 1 — The charge behind the deduction: section 28(iv)
Issue: Whether the waiver of a loan is taxable as a benefit/perquisite under section 28(iv) (or section 41(1)).
Held: Section 28(iv) applies only to a benefit or perquisite received in a form other than money; a benefit received as money (such as a loan waiver) is outside section 28(iv). (Section 41(1) was also held inapplicable on the facts as the waiver was of a capital loan.)
Significance: Defines the limit of the section 28(iv) charge — and explains why section 194R was drafted expressly to cover benefits 'whether convertible into money or not', going beyond Mahindra & Mahindra.
Cluster 2 — The deduction obligation and CBDT guidance
CBDT Circular No. 12 of 2022 (with Circular No. 18 of 2022)
Principle: Tax under section 194R is to be deducted whether the benefit/perquisite is in cash, in kind, or partly in each (relying on the proviso); the deductor is not required to determine whether the benefit is taxable under section 28(iv) in the recipient's hands. The circulars also address valuation and specific situations (samples, conferences, capital assets).
Use: The operative guidance for compliance pending judicial authority — though several positions are themselves contestable.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194R.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194R — Tax Deduction on Benefit or Perquisite in Respect of Business or Profession
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance Act, 2022 (w.e.f. 1 July 2022); new and litigation-prone.
Finance Act, 2026: No amendment.
Mechanism: A person providing a resident a benefit/perquisite (cash or kind) arising from the recipient's business/profession deducts 10% where the aggregate exceeds ₹20,000 a year; for benefits in kind, tax must be ensured before release.
Litigation profile: New. The reach of 'benefit or perquisite' and the CBDT positions are untested — the candour rule applies.
A. SECTION COMMENTARY
Section 194R, inserted by the Finance Act, 2022 with effect from 1 July 2022, requires any person responsible for providing to a resident any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession by that resident, to deduct tax at ten per cent of the value or aggregate value of the benefit/perquisite, where the aggregate exceeds ₹20,000 in a financial year. It is the collection counterpart of the charge in section 28(iv) (value of any benefit or perquisite arising from business/profession) and was designed to capture the large universe of non-cash business inducements — free samples, sponsored trips, gifts, and the like — that had previously escaped both reporting and, often, taxation.
Filling the gap left by Mahindra & Mahindra
The provision must be read against the Supreme Court's decision in Mahindra & Mahindra, which held that section 28(iv) is confined to benefits received in a form other than money and does not reach a benefit received as money (there, a loan waiver). Section 194R deliberately casts a wider net: by the express words 'whether convertible into money or not' and the proviso dealing with benefits wholly or partly in kind, it requires deduction whether the benefit is in cash or in kind, and the CBDT has clarified (Circular No. 12 of 2022, supplemented by Circular No. 18 of 2022) that the deductor need not himself determine whether the benefit is taxable under section 28(iv) in the recipient's hands.
Benefits in kind — ensuring tax before release
Where the benefit is wholly in kind, or partly in cash insufficient to meet the tax on the whole, the proviso requires the provider to ensure that tax has been paid in respect of the benefit before releasing it — the same safeguard found in sections 194B/194BA/194S. The CBDT guidelines address recurring practical questions (dealer conferences, free samples, capital assets given as benefits, the valuation basis), though several of those positions are themselves contestable and likely to be litigated.
A new and litigation-prone provision — candour
Section 194R is recent and, although heavily commented upon, has not yet produced a settled body of judicial authority on its own terms; the live controversies (the reach of 'benefit or perquisite arising from business', valuation, and the validity of particular CBDT positions) remain open. In candour, it is applied from its terms read with section 28(iv), Mahindra & Mahindra and the CBDT circulars.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194R. (1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:
Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:
Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:
Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.
(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(3) Every guideline issued by the Board under sub-section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.
Explanation 1.—For the purposes of this section, the expression "person responsible for providing" means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof. Explanation 2.— For the removal of doubts, it is clarified that the provisions of sub-section (1) shall apply to any benefit or perquisite, whether in cash or in kind or partly in cash and partly in kind.
C. AUTHORITIES
The position is framed by the section 28(iv) charge, the Supreme Court's Mahindra & Mahindra decision and the CBDT guidelines. The candour rule is observed — section 194R itself is largely untested.
Cluster 1 — The charge behind the deduction: section 28(iv)
CIT v. Mahindra & Mahindra Ltd. (2018) 404 ITR 1 (SC)
Issue: Whether the waiver of a loan is taxable as a benefit/perquisite under section 28(iv) (or section 41(1)).
Held: Section 28(iv) applies only to a benefit or perquisite received in a form other than money; a benefit received as money (such as a loan waiver) is outside section 28(iv). (Section 41(1) was also held inapplicable on the facts as the waiver was of a capital loan.)
Significance: Defines the limit of the section 28(iv) charge — and explains why section 194R was drafted expressly to cover benefits 'whether convertible into money or not', going beyond Mahindra & Mahindra.
Cluster 2 — The deduction obligation and CBDT guidance
CBDT Circular No. 12 of 2022 (with Circular No. 18 of 2022)
Principle: Tax under section 194R is to be deducted whether the benefit/perquisite is in cash, in kind, or partly in each (relying on the proviso); the deductor is not required to determine whether the benefit is taxable under section 28(iv) in the recipient's hands. The circulars also address valuation and specific situations (samples, conferences, capital assets).
Use: The operative guidance for compliance pending judicial authority — though several positions are themselves contestable.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194R.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.