TDS u/s 194R for Credit Notes issued

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Credit notes issued to customers for achieving sales targets are generally considered a benefit or perquisite under Section 194R of the Income-tax Act. If the total value of these benefits surpasses £20,000 in a financial year, the issuer must deduct TDS at a rate of 10% before providing the credit note. This applies even though credit notes are accounting adjustments, as they represent a business incentive.

CMA Sagar Das

CMA Sagar Das (Querist)

27 November 2025 We have issued Credit Notes to the Customer for achieving the Sales Target. Is this come under the 194R provision?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

27 November 2025 Yes — issuing credit notes to customers for achieving sales targets generally falls under Section 194R of the Income-tax Act, since it is treated as a benefit or perquisite arising from business. If the aggregate value of such benefits exceeds ₹20,000 in a financial year, the provider must deduct TDS at 10% before granting the benefit.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

27 November 2025 - Credit Notes for Sales Targets:
- These are incentives linked to business performance.
- Even though they are issued as accounting adjustments (reducing payable amounts), they represent a benefit to the customer.
- CBDT guidelines clarify that such incentives — discounts, rebates, or credit notes — are covered under 194R.

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