Section 194R, TDS and Business Gifts Under the Income-tax Act, 2025: Same Rules, New Section Numbers

Section 194R is now Section 393(1) of the Income-tax Act, 2025, with the same 10% rate and ₹20,000 per-recipient threshold. Here is what it means for dealer and client gifts.

Published:: 19 October 2026

If your company gives Diwali boxes, dealer-meet gifts or incentive merchandise to people outside your payroll, the short answer is that the TDS rules for gifting have been renumbered rather than rewritten. From 1 April 2026, Section 194R became Section 393(1), Table Sl. No. 8(iv) of the Income-tax Act, 2025, and according to Saral and Taxqueries the 10% rate and the ₹20,000 per-recipient, per-tax-year threshold carry over. This guide covers that threshold, the old-to-new section mapping, the GST input tax credit block and a simple gift log your CA can work from.

This is a buyer's overview, not legal or tax advice. The sources quoted here are commentary sites, not the official text of the Act. Check every point with your chartered accountant and against the Act on incometax.gov.in before you change how you deduct or report.

What Section 194R covers and who must deduct TDS on gifts

Section 194R was added to the Income-tax Act, 1961 to bring business benefits and perquisites under TDS. When a business gives someone a benefit or perquisite connected with that business, such as a gift, a sponsored trip or free product, the giver may have to deduct tax at source.

Two points matter for gifting teams:

- Gifts in kind count. According to Finin2min's explainer, the provision applies even when the whole benefit is non-cash. A branded backpack or a festive box counts as much as a cash incentive.

- Not every giver has to deduct. Under the old 194R, Finin2min notes, individuals and HUFs were excluded if their turnover was under ₹1 crore (business) or their gross receipts were under ₹50 lakh (profession). Under the new Act the duty falls on a "specified person", according to Taxqueries. Ask your CA whether the same exclusion still applies.

If you buy gifts as a company or LLP, the safe working assumption is that the duty applies to you. The real question is whether a particular recipient crosses the threshold.

The ₹20,000 threshold: per recipient, per tax year

This is the point that is easiest to get wrong. According to Saral and Taxqueries, the rate stays at 10%, and the ₹20,000 limit is the total value of benefits given to one recipient in a tax year. It is not a per-gift limit.

The wording has also changed. The new Act uses tax year where the old Act said "previous year", so update your internal SOPs and vendor forms to use the new term.

How the total builds up in practice

Take a distributor who receives all of these from you in the same tax year:

- a Diwali gift box

- a branded travel kit at the annual dealer meet

- a reward for hitting a quarterly sales target

Each item may look small. Together they can pass ₹20,000 quickly, and the total is what counts. That is why a per-recipient log, covered below, works better than a separate spreadsheet for each campaign.

Why January matters for your tally

Gifts given on or after 1 April 2026 fall under the new Act. If you are reading this in January 2027, your Diwali 2026 gifts, any festive incentives and any dealer meet you hold before 31 March all count towards the same 2026–27 tax year for each recipient. Gifts given before 1 April 2026 stay under the old Section 194R.

Old Act to new Act: how 194R maps to Section 393

TDSMAN, Bajaj Finserv and EbizFiling all state that Section 194R is replaced by Section 393(1), Table Sl. No. 8(iv) of the Income-tax Act, 2025, from 1 April 2026. According to OneFinOps, Section 393 is now the single TDS section for non-salary payments, replacing Sections 193, 194 to 194T and 195.

Here is the mapping as a checklist. Confirmed items come first; open items are flagged.

- TDS on business benefits and perquisites: old Section 194R → new Section 393(1), Table Sl. No. 8(iv). Confirmed by several commentaries.

- Other non-salary TDS sections (193, 194–194T, 195): combined into Section 393.

- Rate: 10% → 10%, unchanged.

- Threshold: ₹20,000 per recipient per previous year → ₹20,000 per recipient per tax year.

- Who deducts: the person providing the benefit → a "specified person" under the new Act. Check the exclusions with your CA.

- General deduction for business expenses (old Section 37(1)): the new-Act section number is not verified here. Confirm it with your CA.

- CBDT Circulars 12/2022 and 18/2022 (guidance on the old 194R): whether they still apply under the new Act is not confirmed. Check with your CA or on incometax.gov.in.

- Payment and return codes: commentaries give different codes. Take the code from official CBDT material, not from a blog.

Dealers, distributors and channel partners: where most TDS on gifts arises

For many companies, the main exposure is the sales channel rather than client gifting. Dealers, distributors, retailers and channel partners can receive several benefits a year: festive gifts, dealer-meet merchandise, scheme rewards and sometimes travel. These repeat benefits are what push the yearly total over ₹20,000.

A few habits help:

- Budget per recipient, not per event. If a top distributor will attend the dealer meet and also get a Diwali box, plan both together.

- Keep tiers separate. Record a standard partner kit and a top-performer reward as separate line items against named recipients.

- Involve finance before the scheme launches. A gift in kind involves no cash payment, so there is nothing to deduct the tax from. Finance needs to decide in advance, with your CA, how the TDS will be handled.

Many channel kits fit in the ₹1,000–₹2,000 range, well below the threshold as a single gift. The risk comes mainly when several benefits to the same partner add up.

Product Card: Executive Essential Pack

The Executive Essential Pack suits distributors who travel. It includes a PU leather wallet, card holder, passport holder, luggage tag, pouch and keychain in a magnetic box, each piece laser-engraved with your logo on a steel plate. Because packs are priced item by item, your invoice gives you a clear value per recipient for the log.

Client gifts vs employee gifts: different tax rules apply

Clients and business associates are the typical recipients under 194R and Section 393. A gift to a client contact is a benefit arising from your business relationship, so the same yearly total applies. A contact you gift once or twice a year may stay well within the threshold, but log every gift all the same.

Employees are generally a separate case. Gifts to your own staff are usually handled under the salary and perquisite rules, not the business-benefits section. Welcome kits, Diwali boxes and appraisal-season rewards are payroll questions, so route them through whoever handles your salary TDS. Do not apply the ₹20,000 business-benefit threshold to employees without checking with your CA.

The simplest setup is two logs: one for external recipients, kept by finance or procurement, and one for employees, kept by HR or payroll.

The GST side: why ITC on gifts is blocked

Income tax is only half of the picture. Under GST, Section 17(5)(h) of the CGST Act blocks input tax credit (ITC) on goods disposed of by way of gift or free samples. In plain terms, if you buy goods specifically to give away, you generally cannot claim back the GST you paid on them. Check the current text on cbic.gov.in and confirm how it applies to you with your CA.

This affects budgeting in two ways:

- Treat GST as a cost. Printing Labs prices include standard logo branding and exclude GST. If the ITC is blocked, the GST on your gifting invoice is a real cost to you, not something you recover.

- Keep gifting purchases easy to identify. Every Printing Labs order comes with a GST invoice, which helps your accounts team record the purchase correctly.

This post does not cover GST rates or HSN codes. For those, read our GST and HSN guide for corporate gifts, which also explains how mixed kits are treated.

Are Diwali and client gifts deductible as a business expense?

Under the old Act, businesses generally claimed gifting costs under Section 37(1), the general provision for expenses incurred wholly and exclusively for business. The new Act has its own general provision, but its section number is not verified here, so ask your CA before you put it into a policy note.

Whatever the section, the test is business purpose, and the evidence you need is the same:

- a tax invoice showing what was bought and at what value

- a record of who received each gift and why (festival, dealer meet, scheme reward)

- an approval trail linking the spend to a business purpose

TDS and deductibility are separate questions, but they rely on the same records. A good log makes both easier.

Keeping a simple per-recipient gift log

You do not need special software. A shared sheet with one row per recipient per gift is enough. Include these columns:

- recipient name, entity and PAN (for external recipients)

- relationship: dealer, distributor, client, consultant or employee

- date given and occasion

- item or kit name and quantity

- value per recipient as invoiced (ask your CA whether to record it with or without GST, and note which you used)

- invoice number and vendor

- running total for the tax year

- whether TDS was deducted, with the reference

Two tips for bulk orders:

- Record the kit value per recipient, not just the order total. Kits are priced item by item, so work out what each recipient actually received.

- Use the invoiced value, not the list price. Most of our products carry bulk discounts of 3% at 25+ units, 5% at 50+, 7% at 100+ and 10% at 200+. Gourmet items have no bulk discount.

Review the running totals every quarter, and always before March. That way you will not discover a crossed threshold in the last week of the tax year.

Choosing dealer and client gifts that keep the paperwork simple

Compliance is easier when each recipient gets one clearly valued item or kit rather than a mix of small benefits spread across the year. These options work well for channel partners and clients.

Product Card: Advanced Wooden Gift Set – 4 in 1

A laser-engraved wooden set looks premium on a client's desk and sits in the ₹1,000–₹2,000 band. It is one product with one value per recipient.

Product Card: Bamboo Wooden Power Bank - 10000mAh

For channel partners who spend their days on the road, a laser-branded bamboo power bank is a practical everyday gift, and it suits sustainability-minded gifting programmes.

Product Card: Luxor Business Gift Box

For your top-tier distributors, the Luxor Business Gift Box combines a Premium Casual Waterproof Laptop Backpack, a polo, an insulated bottle, a notebook and desk accessories. A box this size is where the per-recipient total starts to matter, so log it alongside any other benefits the same partner receives. For senior client contacts, the 6 in 1 Premium Gift Set with Power Bank is a single product with a single invoice line.

If none of these fits, browse our ready-made packs or build your own kit.

Planning a March dealer meet or year-end partner gifts? Allow for production (7–10 business days after mockup approval) and delivery (2–4 business days by air, 5–9 by surface).

Frequently asked questions

Does TDS apply to Diwali gifts for dealers worth under ₹20,000?

The ₹20,000 limit applies to the total of all business benefits you give one recipient in a tax year, not to a single gift. If a dealer's total from you stays within the threshold, the business-benefits TDS provision generally does not apply. If the Diwali gift plus other benefits pushes the total over the limit, it may. Confirm the exact threshold wording with your CA.

Is the ₹20,000 limit per gift or for the whole year?

For the whole year. According to Saral and Taxqueries, it is the total value per recipient per tax year. Track every benefit to the same person, including dealer-meet merchandise and scheme rewards.

Who bears the TDS when the gift is given in kind?

A gift in kind involves no cash payment, so there is nothing to deduct the tax from. How the tax is then handled, including whether the giver bears it or recovers it from the recipient, is a question for your CA and finance team. Settle it before the gifting scheme launches, not after.

Are employee gifts covered by Section 194R or Section 393?

Employee gifts are generally handled under the salary and perquisite rules, not the business-benefits section. Send welcome kits, Diwali gifts and rewards for staff through your payroll team. Keep a separate log for employees.

Can we claim GST input tax credit on corporate gifts?

Generally no.