TDS on Sponsorship & Advertising Fee: Sections 194C 194J 194I &194R

Under the Income Tax Act, TDS on sponsorship comes under Section 194C. And that covers payments made for carrying out any work, such as advertising, magazines, marketing activities, etc. From a tax point of view, these kinds of expenses are usually treated as commercial transactions. Hence, as a business, you must count TDS for your sponsorship expenses.

As clarified by CBDT Circular No. 715 (dated 8 August 1995), sponsorship agreements are usually treated as advertising contracts. And therefore, the applicable sponsorship TDS fee is 1% if the payment is made to an individual or HUF and 2% when it is made to any other entity.

For example, let us take the case of a company that has paid ₹3,00,000 to a resident event organiser for sponsoring a business summit. In this case, it must deduct TDS fee at 2% under Section 194C before releasing the payment.

Similarly, if an individual entrepreneur sponsors a local cultural event for ₹1,50,000, TDS at 1% would apply since the payee is an individual contractor.

Depending on each situation, other sections such as 194J (professional services), 194I (rent) or 194R (benefits or perquisites) also come into the picture. So it is essential to do proper classification of the payment.

A Quick Look At Various Sections:

Now, let us take a detailed look at the complete treatment of sponsorship TDS payments, covering everything that comes under the sections.

What is Section 194C

When it comes to TDS fee on sponsorship, the first question that comes into the picture is “which TDS section applies?” and “at what rate or percentage?”

And the right answer to these questions lies in Section 194C of the Income Tax Act. This is one of the important sections that covers details about TDS on advertisements. As mentioned previously, to remove any sort of confusion, the CBDT (Central Board of Direct Taxes) issued Circular Number 715 on 8-8-1995.

In this, they have clearly specified that sponsorship agreements are to be treated as advertising contracts.

In layman’s style, we can say that if you pay someone to promote your brand, then you must deduct TDS under section 194C.

Here are a few examples of court cases for your reference to have a more in-depth knowledge of Section 194C.

1. Hero Honda Motors Ltd. v. ACIT: Here sports event sponsorships were concluded as advertising.
2. Hindustan Lever Ltd. v. DCIT: Here payment for brand promotion was concluded as advertising contracts.

So, what’s the takeaway from this?

Whether you call it a sponsorship, brand collaboration or even marketing support. Whatever it may be, at the end of the day, the purpose matters more than the name. So if that particular activity is giving you brand exposure, then you have to add TDS on the advertisement charges that apply.

One of the major issues that we have seen over the years is that the majority of businesses treat this as a donation. And they skip the TDS and we will highlight the fact that “that’s risky”.

If you make such a misclassification, it can lead to expense disallowance. And this can result in penalties for non-deduction.

Hence, we can conclude one thing that, if you have any sponsorship or advertising agreement, ask one simple question – “Does this payment promote my brand?”

If yes, then you have to deduct TDS under Section 194C.

As simple as that.

Types of Sponsorship Payments

As we know, sponsorships and marketing payments can be in various forms. Sometimes it can be event partnerships, influencer tie-ups, dealer promotions, etc. Each of these can attract TDS under different sections.

So the ultimate challenge is not whether TDS applies or not; it is about which section applies. Let us have a quick look at a short guide to help you classify them effectively, and find out which TDS section applies to your sponsorship payment – 194C, 194J, 194I or 194R.

1. Section 194C

Advertising and sponsorship contracts: This section applies when you are making a payment to a resident contractor or agency for your promotional/advertising work. And this covers sponsorship rights, brand promotions, logo displays, event partnerships or co-branding campaigns. TDS to deduct: 1% (individual/HUF) or 2% (others)

2. Section 194J

Professional / Influencer / Creative Services: This section applies if your payment involves professional skill or expertise. Such as celebrity endorsements, digital content creation or PR consultancy. TDS to deduct: 10% on the total professional fee.

3. Section 194I

Exhibition Stall or Space Rent: This section applies in case you get paid for your rentals or stall areas. In this case, TDS should be deducted at 10% given that it’s for land/building/furniture (₹50,000 per month threshold).

4. Section 194R

Business Benefits or Perquisites: This section covers non-cash promotional benefits such as gifts, free trips or sponsored events offered to dealers or distributors. In this case, you have to deduct 10% TDS on the value exceeding ₹20,000 per recipient in a financial year.

Now we have a conclusion that TDS on marketing expenses and sponsorship payments depends on the substance of the transaction. Identifying the right section is important to apply the right rates.

Now, let us have a look at how these marketing and sales promotion expenses are viewed collectively under the law.

TDS For Marketing & Promotion

By now, we have a clear idea of the types of sponsorship payments. Now let us address a question that most of the businesses seem to ask us:

Why does the tax department treat sponsorship, branding and marketing expenses as advertising for TDS? Doesn’t these marketing activities looks different? Why are they treated the same way?

Let us give you a clear answer for this. From a tax perspective, they value the objective over execution.

Whether you name it:

• a dealer conference
• a digital campaign
• a festival promotion
• a personal branding
• or a brand visibility fee

All these are done with one objective: to put your brand in front of your audience. And this is why, for TDS purposes, marketing, sponsorship and sales promotion expenses are grouped under one economic activity: advertising.

Here is a thumb rule for you:

If your marketing team is calling it a brand activity, the tax department will call it an advertising contract.

And advertising contracts = Section 194C.

Even though the majority of promotional spends fall under 194C, some benefits provided to dealers, partners or influencers are not payments. And that is where Section 194R quietly enters the picture.

Section 194R Explained

You might be wondering, and have asked this question to yourself: “Does TDS apply even if I give gifts, freebies or non-cash sponsorship benefits?”

Well, the answer is – YES!

Not every promotional expense is a payment. Sometimes we see that businesses don’t pay cash; instead, they send gifts to dealers or influencers.

And this is where this one question comes in naturally:

“If no payment is made, does TDS still apply?”

And the right answer is YES – TDS is applied under Section 194R.

Section 194R was introduced mainly to consider these kinds of transactions. In case no money is transferred here, the value of the benefit becomes taxable and you must deduct TDS at 10%. If the value crosses ₹20,000 per recipient per financial year.

Let us have a look at a few scenarios where 194R comes into the picture:

• You sponsor a foreign trip for someone
• You send a smartphone or a product that they keep
• You offer free gifts for achieving sales targets
• Provide event passes or hospitality benefits as an incentive

Like these, several things come under Section 194R.

Over the years, we have seen that businesses assume that only payments attract TDS. But in reality, even non-cash incentives attract TDS, especially in the case of FMCG, pharma, electronics, automotive and retail sectors. And if you fail to deduct TDS under 194R, it can lead to:

• expense disallowance,
• interest,
• and an even penalty for non-deduction.

So while 194C covers your contracts, 194R covers your freebies.

Next, let us have a look at a practical area where businesses struggle the most. In case of exhibitions, stall rentals and event participation, TDS treatment here depends entirely on what you’re actually paying for.

TDS For Exhibitions: Let’s See How It Changes

When it comes to TDS on exhibition and trade fair expenses, the calculation can be a bit tricky. There can be confusion as to whether to take 194I or 194C. And the right answer for this depends on what you are paying for. Exhibition invoices normally combine rent plus services and each part has a different TDS section.

Stall or Space Rent – Section 194I

If you are simply renting a stall area, booth space or a bare floor, then it counts as rent, on this Section 194I applies at 10% rate.

Event or Exhibition Management – Section 194C

In case the organiser provides stall setup and fabrication, lighting, sound, signage or digital display, section 194C applies at 1% or 2%.

What if your invoice includes both

In case your invoice includes both 194I and 194C, you have to handle it carefully because incorrect treatments can lead to penalties.

One solution for this dilemma is to request for a bifurcated invoice. That separates a rent component (194I) from a service component (194C).

TDS Compliance Checklist

Here is a quick checklist for your finance team to follow before clearing any sponsorship, marketing or event-related invoices.

1. Identify the correct TDS section

See if it is a section 194C, 194J, 194I or 194R based on your sponsorship type. If you take the wrong section, incorrect information can lead to wrong rates and disallowance in the end.

2. Verify the correct TDS rate

Match the payment to the correct section:

• 194C → 1% / 2%
• 194J → 10%
• 194I → 10%
• 194R → 10% (benefits/perquisites)

3. Check the thresholds

Make sure that the payment crosses the applicable limits:

• 194C → ₹30,000 per bill or ₹1,00,000 yearly
• 194J → ₹50,000 per party
• 194I → ₹50,000 monthly
• 194R → ₹20,000 yearly

4. Deduct TDS before making the payment

The timing matters a lot in the case of taxation. TDS must be deducted at the time of credit or payment, whichever is earlier.

5. Deposit TDS within due dates

You have to deposit the TDS within the due date; a delay leads to interest under Section 201(1A).

Common Classification Errors You Must Avoid

Here are some common classification errors you can avoid so you do not end up getting penalties or disallowance.

• Treating sponsorship as a donation/CSR and skip TDS
• Applying section 194C for a transaction that falls under 194J
• Deducting 10% under 194I on invoices that are service contracts
• Not considering 194R in case of free gifts, free tickets, etc.
• Not checking the threshold limits
• Applying a single TDS section in a mixed invoice
• Treating a non-resident sponsorship as a resident

Final Thoughts:

Sponsorship, marketing, events and branding may look different in execution. But when it comes to a tax perspective, all these come under one. Whatever promotion is involved, TDS follows. The key is to see the objective rather than the execution.

If it promotes your brand, visibility or business interest. Then it comes under a TDS section – whether 194C, 194J, 194I, 194R or in some cases even 195. And it is the right classification is what keeps the expense allowable to avoid notices and to ensure smooth compliance.

So next time when your team processes a sponsorship or promotional invoice, pause and ask: “Which section truly applies to this payment?” And this one question could make all the difference.