TDS on Diwali gifts and dealer incentives — Section 194R is now Section 393(1)

In this article

What actually counts as a "benefit or perquisite"The ₹20,000 doesn't reset at Diwali — it's already runningWho deducts — and who's actually exemptHow do you actually collect 10% on a gold coin?One more trap: the GST angle nobody mentionsKey takeaways

Every Surat trading and manufacturing firm has some version of the same festive-season list: a diary and calendar for every dealer in April, a Rakhi hamper in August, sweets around Ganesh Chaturthi, and then the Diwali gift itself — sometimes a gift box, sometimes a gold coin, sometimes a sponsored trip for the dealers who crossed their annual target. Nobody totals these up against one recipient's name across the year. The Income-tax Act now expects exactly that.

The rule isn't new — it was inserted as Section 194R of the old Act in 2022. What changed on 1 April 2026 is the address: it now sits at Section 393(1), Table 1, Sl. No. 8(iv) of the Income-tax Act, 2025, the same consolidated TDS table that now carries almost every provision that used to have its own section number. The mechanics haven't moved at all — only the label CAs use when they talk about it.

What actually counts as a "benefit or perquisite"

Section 393(1) covers anything of value — cash, kind, or a mix — that a business hands over to someone "arising from" that business relationship, not from a sale at a stated price. A gold coin for a top dealer, a sponsored Goa trip for the five distributors who hit their target, free fabric samples sent to retailers rather than end customers, medicine samples to a doctor, a waived loan to a supplier — all of it counts. A normal trade discount or cash discount that simply reduces the invoice price does not, and neither does a turnover-linked rebate credited against a future bill; CBDT's own guidance (Circular No. 12 of 2022, still the operative interpretation carried into the new Act) specifically carved these out, because taxing a discount would have meant taxing the seller's own reduced price.

The ₹20,000 doesn't reset at Diwali — it's already running

The threshold is ₹20,000 per recipient, added up across the whole financial year, starting 1 April. It is not a per-gift limit and it does not restart in October. Plain example: a Ring Road textile wholesaler sends every dealer a ₹750 New Year diary in April, a ₹1,800 Rakhi hamper in August, and a ₹2,450 sweets box around Ganesh Chaturthi — already ₹5,000 against that one dealer's name before Diwali even arrives. If the Diwali gift itself is a ₹16,500 gold-plated set, the year's total for that dealer hits ₹21,500, crossing ₹20,000. Section 393(1) then applies — and applies to the entire ₹21,500, not merely the ₹1,500 that crossed the line. TDS at 10% works out to ₹2,150, due before the gift is handed over.

The transaction that triggers TDS is rarely the year's biggest gift. It's whichever one happens to come after the running total already got close.

Sponsored dealer trips make this sharper because they clear the threshold in one shot. A powerloom unit that sends its top five performing dealers on a three-night trip worth ₹42,000 a head owes ₹4,200 of TDS per dealer — the moment the sponsorship is confirmed, well before anyone books a ticket.

Who deducts — and who's actually exempt

The obligation sits with the giver, not the receiver. A company, LLP or partnership firm distributing Diwali gifts must deduct, whatever its turnover — there is no small-business exemption for these entities. The only carve-out in Section 393(1) itself is for an individual or a HUF whose total sales, gross receipts or turnover in the immediately preceding financial year did not exceed ₹1 crore for a business, or ₹50 lakh for a profession. A Surat proprietorship comfortably under those numbers can hand out Diwali gifts without deducting anything; a private limited company or a partnership firm of any size cannot assume the same.

How do you actually collect 10% on a gold coin?

The law expects tax to be deducted "before providing" the benefit — awkward when the benefit isn't cash. In practice, businesses handle it one of three ways: ask the recipient to pay the TDS amount in cash before the gift is released (the most common route, and the cleanest paper trail); gross up and absorb the tax yourself, so the recipient gets the full gift and you bear the extra cost; or, where the running total is close to ₹20,000 and the gift is genuinely optional, trim it enough to stay under the threshold for that recipient this year — legitimate planning, not evasion, as long as the value is real and not artificially split into smaller instalments to dodge the aggregation itself, which CBDT's guidelines specifically treat as still counting toward the total.

One more trap: the GST angle nobody mentions

Income tax isn't the only bill here. If your firm claimed input tax credit on the goods used to make up a gift — fabric, packaging, the gift box itself — that credit has to be reversed under Section 17(5)(h) of the CGST Act once those goods go out as a gift with no consideration charged, per CBIC's Circular No. 92/11/2019-GST. A gift given free of cost isn't a "supply" and attracts no output GST, but the ITC you already claimed on making it doesn't survive that. Most firms remember the TDS question at Diwali and forget the ITC reversal entirely — it only shows up months later, at GST annual return time.

This article is general information, not professional advice. Rules change; verify current provisions or contact the office for advice on your situation.