New Delhi : the Central Board of Direct Taxes (CBDT) had directed that the doctors or the hospital in which the doctors work has to pay 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 is required by the Income-tax Act of 1961, Section 194R (TDS on benefit or perk related to business or profession).But Section 194R does not speak about penalties and prosecution of what will be the consequences of if 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. 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. 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.