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CBDT CircularHigh impact for ecommerce sellers

TDS on business benefits (Section 194R): influencer products, free samples and gifts

Reviewed by CA Apurav GargSummary reviewed

Document
Circular No. 12/2022 and Circular No. 18/2022
Issued
13 Sept 2022
Effective
Section 194R from 2022-07-01; Section 393(1) Sl. No. 8(iv) from 2026-04-01
Issued by
Central Board of Direct Taxes (CBDT)
Official PDF(opens in a new tab)

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What it means for ecommerce sellers

Brands that send products to influencers, give free samples or reward dealers need to deduct 10% TDS on the value of benefits above ₹20,000 a year per recipient. CBDT's guidelines say a product the influencer keeps is a benefit, while a product returned after the shoot is not. Free samples are not covered by the discount relief. Value is the purchase price, or the price charged to customers if you make the item, without GST. Where the benefit is fully in kind, the brand must make sure the tax is paid before releasing it. From 1 April 2026 the same TDS sits in Section 393(1) Table Sl. No. 8(iv) of the Income-tax Act 2025 (10%, threshold ₹20,000).

Who it affects

  • D2C brands running influencer seeding or barter collaborations
  • Brands giving free samples, gifts or incentive trips
  • Social media influencers and content creators

Before and after

  • Product given to an influencer and kept

    Before
    No TDS before 1 July 2022
    After
    Benefit: 10% TDS when the year's total exceeds ₹20,000

  • Product returned after the shoot

    Before
    Not applicable
    After
    Not a benefit for Section 194R (Circular 12/2022, Q6)

  • Valuation

    Before
    Not applicable
    After
    Purchase price, or the price charged to customers if self-made; GST excluded

  • Section reference from 1 April 2026

    Before
    Section 194R
    After
    Section 393(1) Table Sl. No. 8(iv), Income-tax Act 2025

What to do

  1. Keep a register of products, gifts and benefits given to each influencer or business recipient, with values.
  2. Record whether each product was returned or kept.
  3. Where the benefit is wholly in kind, collect the recipient's advance tax challan and declaration, or deposit the TDS yourself, before releasing it.

Provisions referred to: Section 194R Income-tax Act, 1961; Section 28(iv); Section 393(1) Table Sl. No. 8(iv) Income-tax Act, 2025

Related tools and services

Official text

As issued by Central Board of Direct Taxes (CBDT). Where the text starts with “Extract”, only the parts that concern ecommerce sellers are reproduced; the official PDF (opens in a new tab) is the authoritative version.

Type a word, number or section to highlight it below.

Extract: the parts of the official text that this update relates to. Omitted passages are marked […]. The complete document is at the official link above. Circular No. 12 of 2022 F. No. 370142/27/2022-TPL Government of India Ministry of Finance Department of Revenue (Central Board of Direct Taxes) New Delhi, dated 16th June, 2022 Subject: Guidelines for removal of difficulties under sub-section (2) of section 194R of the Income-tax Act, 1961 Finance Act 2022 inserted a new section 194R in the Income-tax Act, 1961 (hereinafter referred to as “the Act”) with effect from 1st July 2022. The new section mandates a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source @10% of the value or aggregate of value of such benefit or perquisite, before providing such benefit or perquisite. The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business, or from exercising a profession, by such resident. This deduction is not required to be made, if the value or aggregate of value of the benefit or perquisite provided or likely to be provided to the resident during the financial year does not exceed twenty thousand rupees. The responsibility of tax deduction also does not apply to a person, being an Individual/Hindu undivided family (HUF) deductor, whose total sales / gross receipts / gross turnover from business does not exceed one crore rupees, or from profession does not exceed fifty lakh rupees, during the financial year immediately preceding the financial year in which such benefit or perquisite is provided by him. […] Question 4: Whether sales discount, cash discount and rebates are benefit or perquisite? Answer: Sales discounts, cash discount or rebates allowed to customers from the listed retail price represent lesser realization of the sale price itself. To that extent purchase price of customer is also reduced. Logically these are also benefits though related to sales/purchase. Since TDS under section 194R of the Act is applicable on all forms of benefit/perquisite, tax is required to be deducted. However, it is seen that subjecting these to tax deduction would put seller to difficulty. To remove such difficulty it is clarified that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers. There could be another situation, where a seller is selling its items from its stock in trade to a buyer. The seller offers two items free with purchase of 10 items. In substance, the seller is actually selling 12 items at a price of 10 items. Let us assume that the price of each item is Rs 12. In this case, the selling price for the seller would be Rs 120 for 12 items. For buyer, he has purchased 12 items at a price of 10. Just like seller, the purchase price for the buyer is Rs 120 for 12 items and he is expected to record so in his books. In such a situation, again there could be difficulty in applying section 194R provision. Hence, to remove difficulty it is clarified that on the above facts no tax is required to be deducted under section 194R of the Act. It is clarified that situation is different when free samples are given and the above relaxation would not apply to a situation of free samples. Similarly, this relaxation should not be extended to other benefits provided by the seller in connection with its sale. To illustrate, the following are some of the examples of benefits/perquisites on which tax is required to be deducted under section 194R of the Act (the list is not exhaustive): - When a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc. - When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets - When a person provides free ticket for an event - When a person gives medicine samples free to medical practitioners. The above examples are only illustrative. The relaxation provided from non-deduction of tax for sales discount and rebate is only on those items and should not be extended to others. […] Question 5. How is the valuation of benefit/perquisite required to be carried out? Answer: The valuation would be based on fair market value of the benefit or perquisite except in following cases:- (i) The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. In that case the purchase price shall be the value for such benefit/perquisite. (ii) The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite. It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act. Question 6: Many a times, a social media influencer is given a product of a manufacturing company so that he can use that product and make audio/video to speak about that product in social media. Is this product given to such influencer a benefit or perquisite? Answer: Whether this is benefit or perquisite will depend upon the facts of the case. In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics etc and if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit/perquisite for the purposes of section 194R of the Act. However, if the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act. […] Question 9: Section 194R provides that if the benefit/perquisite is in kind or partly in kind (and cash is not sufficient to meet TDS) then the person responsible for providing such benefit or perquisite is required to ensure that tax required to be deducted has been paid in respect of the benefit or perquisite, before releasing the benefit or perquisite. How can such person be satisfied that tax has been deposited? Answer: The requirement of law is that if a person is providing benefit in kind to a recipient and tax is required to be deducted under section 194R of the Act, the person is required to ensure that tax required to be deducted has been paid by the recipient. Such recipient would pay tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in TDS return along with challan number. This year Form 26Q has included provisions for reporting such transactions. In the alternative, as an option to remove difficulty if any, the benefit provider may deduct the tax under section 194R of the Act and pay to the Government. The tax should be deducted after taking into account the fact the tax paid by him as TDS is also a benefit under section 194R of the Act. In the Form 26Q he will need to show it as tax deducted on benefit provided. — and — Circular No 18 of 2022 F.No. 370142/27/2022-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes (TPL Division) New Delhi, Dated 13th September, 2022 Sub: Additional Guidelines for removal of difficulties under sub-section (2) of section 194R of the Income-tax Act, 1961 […] 7. It is clarified that this Circular is only for removing difficulties in implementation of provisions of section 194R of the Act and it does not impact the taxability of income in the hands of the recipient which shall be governed by the relevant provisions of the Act. […] Question 4: Refer question No 8 of the Circular No 12 of 2022- If there is a dealer conference to educate the dealers about the products of the company – (i) is there a requirement that all dealers must be invited in the conference, (ii) what if dealers arrive one day before and leave one day after and (iii) how to identify benefit against individual dealers in a group activity? Answer: […] In order to remove these practical difficulties, it is clarified that if benefit/perquisite is provided in a group activity in a manner that it is difficult to match such benefit/perquisite to each participant using a reasonable allocation key, the benefit/perquisite provider may at his option not claim the expense, representing such benefit/perquisite, as deductible expenditure for calculating his total income. If he decides to opt so, he will not be required to deduct tax under section 194R on such benefit/perquisite and therefore he will not be treated as assessee in default under section 201 of the Act. Thus, in such a case he must add back the expenditure, representing such benefit/perquisite, to calculate his total income if such expenditure is debited in the account. Question 5: Refer question No 9 of the Circular No 12 of 2022- Company “A” gifts a car to its dealer “B” and deducted tax on this benefit under section 194R of the Act. Dealer “B” uses this car in his business. Will he get deduction for depreciation in calculating his income under the head “profits and gains of business or profession”? Answer: Once Company “A” has deducted tax on gifting of car in accordance with section 194 R of the Act (or released the car after dealer “B” showed him payment of tax on such benefit) and dealer “B” has included this benefit as income in his income tax return, it would be deemed that the “actual cost” of the car for the purposes of section 32 of the Act shall be the amount of benefit included by dealer “B” as income in his income-tax return. Hence, dealer “B” can get depreciation on fulfillment of other conditions for claiming depreciation.

Questions sellers ask

Is TDS deductible on products given to influencers?

CBDT Circular 12/2022 (Q6) says that if the influencer keeps the product, it is a benefit and TDS under section 194R applies. If the product is returned after use, it is not treated as a benefit.

What is the threshold for Section 194R?

No deduction is needed if the value of benefits provided to a resident during the financial year does not exceed ₹20,000. Above that, TDS is 10% of the value.

How are free products valued for Section 194R?

At fair market value, except that a bought item is valued at its purchase price and a self-made item at the price charged to customers. GST is not included.

Are sales discounts covered by Section 194R?

No. Circular 12/2022 clarifies that sales discounts, cash discounts and rebates need no TDS under section 194R, but this relief does not extend to free samples or other benefits.

Want help working out what this means for your business?

We handle GST and TDS compliance, returns and notice replies for D2C and marketplace sellers, and can walk you through how a change applies to your books.

Contact usWhatsApp us

General information only, not professional advice. The summary is ecomca’s reading of the document; the official PDF is the authoritative version, and later amendments may change it. Check the official source before you act.