Last Updated on December 30, 2023 by The Health Master
New Delhi: In what is going to bring a major setback to the traditional pharma marketing of providing free physician’s samples as well as various other freebies to doctors, the new Government of India guidelines are going to hold doctors accountable for such benefits by being liable towards a 10% TDS on the value of freebies received.
Besides free samples, this will also be applicable to various kinds of other freebies which may include foreign flight tickets or free Indian premier League (IPL) tickets in the course of business and more.
The Central Board of Direct Taxes (CBDT) issued the guidelines clarifying the applicability of the newly inserted section 194R in the Income-tax Act, 1961 effective July 1, 2022.
The new section 194R mandates a person, who is responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 10% of the value or aggregate of value of such benefit or perquisite, before providing such benefit or perquisite.
The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business, or from exercising a profession, by such resident.
As per the government. the benefits/perquisites on which tax is required to be deducted under section 194R of the Act clearly include the situation When a person gives medicine samples free to medical practitioners.
It goes on to explain, that this will be there whether its directly given to a doctor, who may be an employee or even a consultant at a hospital
To illustrate, the free medicine sample may be provided by a company to a doctor who is an employee of a hospital.
The TDS under section 194R of the Act is required to be deducted by the company in the hands of hospital as the benefit/perquisite is provided to the doctor on account of him being the employee of the hospital. Thus, in substance, the benefit/perquisite is provided to the hospital.
The hospital many subsequently treat this benefit/perquisite as the perquisite given to its employees (if the person who used it is his employee) under section 17 of the Act and deduct tax under section 192 of the Act.
In such a case it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital.
Hospital can get credit of tax deducted under section 194R of the Act by furnishing its tax return. It is further clarified that the threshold of twenty thousand rupees in the second proviso to sub-section (I) of section 194R of the Act is also required to be seen with respect to the recipient entity.
For Consultants, it goes on to explain
Similarly, the tax is required to be deducted under section 194R of the Act if the benefit or perquisite is provided to a doctor who is working as a consultant in the hospital.
In this case the benefit or perquisite provider may deduct tax under section 194R of the Act with hospital as recipient and then hospital may again deduct tax under section 194R of the Act for providing the same benefit or perquisite to the consultant.
To remove difficulty, as an alternative, the original benefit or perquisite provider may directly deduct tax under section 194R of the Act in the case of the consultant as a recipient.
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