Section 194R: Tax Guide on Free Products & Brand Gifting

Q1. I received a product worth ₹12,000. Do I need to report it even though it's under ₹20,000?

Yes, absolutely. The ₹20,000 threshold is only for TDS deduction by the brand—it's not a tax exemption limit. You must report ALL perquisites (even ₹1,000 value) as business income in your ITR. You'll pay tax on it at your applicable slab rate (5%/20%/30%). The brand won't deduct TDS, so you pay full tax yourself.

Q2. Can I claim business expenses against perquisite income to reduce tax?

Yes, if you maintain books of accounts. If you're using regular accounting (not presumptive taxation), you can deduct legitimate business expenses like content creation costs, equipment, internet, travel against total business income including perquisites. However, if using Section 44ADA presumptive taxation, you can't claim separate expenses—you automatically get 50% deemed profit, so 50% of perquisite value is considered as expense.

Q3. What if the brand doesn't provide Form 16A or deduct TDS?

Action steps: (1) Check Form 26AS on IT portal—TDS should reflect even without Form 16A certificate. (2) Send written email to brand requesting Form 16A with reminder of their 194R obligation. (3) If TDS was deducted but not deposited, report to brand's AO (Assessing Officer). (4) If brand didn't deduct TDS at all, you still must report full perquisite value as income. You can claim TDS credit only if it appears in 26AS.

Q4. I later sold the gifted product on OLX/Facebook. How is that taxed?

Double taxation scenario: (1) At receipt: Perquisite value is business income taxed at slab rate. Example: Phone valued at ₹80K → taxed as income. (2) At sale: If you sell for more than FMV at receipt, the profit is capital gain. Example: Sold phone for ₹90K after 8 months → ₹10K is short-term capital gain (taxed again). Use the FMV at receipt (₹80K) as your cost of acquisition for capital gains calculation.

Q5. Does Section 194R apply to foreign brands sending products from abroad?

Depends on structure: If foreign brand has no Indian presence (no office/subsidiary) and ships directly from abroad, technically there's no Indian "deductor" to deduct TDS. However, you must still report the perquisite value as income. If the foreign brand operates through Indian subsidiary or has Indian branch, Section 194R applies fully. Additionally, check FEMA compliance for import of goods as gifts. Consult CA for cross-border scenarios.

Q6. What if I immediately gift the received product to family/friend?

Still fully taxable to you. Taxation occurs at the moment you receive the perquisite, not when you use or dispose of it. Even if you give away the product the same day, you must report it as income. The person receiving your gift may have separate tax implications under gift tax rules (generally exempt if under ₹50,000 from non-relatives, fully exempt from relatives as defined in IT Act).

Q7. Can I get a Lower TDS Certificate to reduce the 10% TDS rate?

Theoretically yes, but practically challenging. If you expect nil or very low tax liability (due to low income, high deductions, losses), you can apply to your Assessing Officer for a Section 197 certificate to lower TDS rate to say 2% or even nil. However, this requires advance planning, detailed application with income projections, and AO approval (can take months). Most brands prefer to deduct standard 10% for simplicity and compliance certainty.

Q8. What about unsolicited PR packages sent to my home without prior agreement?

Grey area—err on safe side. If you regularly create content about products (even unsolicited ones), IT Dept may consider them business perquisites. Best practice: Distinguish genuinely unsolicited small samples (₹500 lipstick you didn't ask for and may not feature) vs. high-value products you prominently feature (₹80K bag). For high-value items you showcase, report as income even if technically unsolicited. Document your decision logic for each case.

Q9. How do I handle GST on barter deals? Is that separate from income tax?

Yes, GST is completely separate from Section 194R. If you're GST-registered (turnover over ₹20 lakh), barter deals are taxable supplies under GST. You must issue invoice to brand for your service (content creation) at FMV and charge GST at 18% (for most services). The brand also accounts for GST on product value. This GST is in addition to income tax under 194R. See our detailed GST Guide for Creators.

Q10. I didn't report perquisites in FY 2022-23 or FY 2023-24. What should I do now?

File updated returns immediately. You can file updated return under Section 139(8A) within 2 years of end of relevant assessment year. For FY 2022-23 (AY 2023-24), deadline is March 31, 2026. For FY 2023-24 (AY 2024-25), deadline is March 31, 2027. You'll pay tax + interest + 25% additional tax penalty. But voluntary disclosure shows good faith and may help avoid prosecution. Don't wait for IT notice. Consult a CA immediately to quantify liability and file updated returns.