TDS u/s 194R and GST Liability

This query is : Resolved

SUDHEEP M (Querist)
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07 August 2024 Sir,

One of my client received 10 mobile tab as sales promotion under a credit note. This credit note specifically mentioned that it was sales promotion expense and TDS was deducted under section 194R and no GST was collected in that credit note. Then I want to provide these mobile tab to one of my customer under a credit note which was in excess of Rs. 20,000. Then I want to know whether the credit note I am proposing to issue was liable for GST or Can I issue the same without GST in the same way as issued by the supper. But I think I would definitely required to collect TDS under section 194R in the credit note I am proposing to issue. Please clarify regarding the GST Applicability and TDS

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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13 August 2025 You're dealing with a fairly complex situation that touches both GST and TDS under section 194R of the Income Tax Act. Let’s break this down clearly, step-by-step:
📦 Scenario Summary:
Your client received 10 mobile tablets from a supplier:
Under a credit note marked as "sales promotion expense"
TDS u/s 194R was deducted
No GST was charged
Now your client wants to distribute these tablets to their customers via a credit note, where the value exceeds ₹20,000.
❓ Questions:
Can your client issue the credit note without charging GST?
Is TDS u/s 194R required when distributing these tablets?
🧾 1. GST Applicability – YES, GST is Applicable
👉 As per GST Law:
Free gifts or promotional items distributed to customers are considered supply under Schedule I, if made in the course or furtherance of business.
Even if no consideration is received, GST is still applicable if ITC has been claimed on the goods.
✅ In Your Case:
The tablets are received for sales promotion → used in the course of business
Your client is now giving them to customers
So, your client is making a deemed supply under Schedule I
🛑 Exception:
If ITC was not availed on the tablets (say, because GST was not charged by the supplier), your client may not be liable to pay GST on the outward credit note. But this depends on documentation and treatment in books.
⚠️ Risk:
If ITC was wrongly claimed, and you issue the credit note without GST, it can be treated as a non-compliant supply.
💡 Suggested Treatment:
Credit Note to Customer GST Charge Required? Reason
Yes ✅ Likely Yes Deemed supply under Schedule I if used in business, and ITC involved
You must charge GST on the value of the tablets in the credit note, unless:
You can prove no ITC was availed, and
It is purely a gift without consideration
💸 2. TDS under Section 194R – Yes, TDS Applies
✅ Why?
Section 194R applies when a benefit or perquisite is provided to a business in kind (or partly in kind) and value exceeds ₹20,000/year.
Tablets given to customers (if they are resellers, dealers, or in business) are a perquisite.
So, your client must deduct 10% TDS under 194R, if:
The recipient is a resident engaged in business/profession
Value > ₹20,000 in aggregate per year
🔧 Key Point:
TDS must be deducted on the value of the benefit (tablet), even if there is no invoice value or payment.
If TDS cannot be deducted in cash (because it's in kind), the giver must bear the TDS burden or collect it from the recipient.
✅ Final Answer:
Topic Treatment
GST on credit note ✅ Yes, charge GST unless you can prove no ITC was taken
TDS u/s 194R ✅ Yes, TDS @ 10% must be deducted or borne by giver
📝 Suggested Actions:
Review whether ITC was claimed on the mobile tablets.
If yes → charge GST on the credit note value.
Deduct TDS u/s 194R @ 10% on the value of tablets given to the customer.
Ensure proper reporting in GSTR-1 (if GST charged) and Form 26Q (for TDS).

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