Failure to pay 10 percent of TDS on the value of freebies received by the doctors will lead to a term of up to 6 months in jail and a designated penalty as per the recent clarification from the Union Government.
According to new rules from the Central Board of Direct Taxes (CBDT), doctors will have to pay a 10 percent tax deducted at source (TDS) on free samples and other gifts worth more than Rs 20,000 if they are given to them for free. This rule goes into effect on July 1, 2022. If the doctor works for a hospital, the TDS will be paid by the hospital. This is required by the Income-tax Act of 1961, Section 194R (TDS on benefit or perk related to business or profession).
The CBDT put out rules last year that explains how this new section can be used. They were supposed to go into effect on July 1, 2022. In general, 10% TDS must be taken out of any benefit whose value is more than Rs 20,000 in a year. One of the benefits is that a pharmaceutical company gives out free samples. The benefit or perquisite may or may not be able to be turned into cash, but it should come from running a business or doing a job.
But the rules about penalties and prosecution didn't make it clear what would happen to someone who didn't pay or didn't follow the rules in that section.
To make sure that Section 194R is followed as closely as possible, the government has recently proposed to change sections 271C and 276B of the Act by adding penalties and prosecutions for not following Section 194R (TDS on benefit or perquisite in relation to business or profession) starting on April 1, 2023.
The move is going to make a big dent in the way pharma companies usually market their products all over the country. The new rule is likely to make it less appealing for pharma companies to give freebies and even free samples to doctors. This is a major setback for the companies.