The income tax department has introduced new Section 194R in the ITA to plug the possibility of tax revenue leakages or tax evasions by businesses and professionals. Prior to the introduction of Section 194R businesses and professionals offered in-kind incentives to various entities involved in their business and claimed it as expenses under Section 37 of ITA. Thus the businesses and professionals included these expenses in its profit and loss account and claimed Income Tax benefit. On the other hand the recipient of in-kind incentives did not report these in-kind incentives in their income leading to incorrect disclosure of income by the recipient though they were meant to disclose it as per Section 28 (iv) of the ITA. Effectively it led to the Income tax evasion by the recipient of the in-kind incentive.
Section 194R applicable from 1st July, 2022 has been introduced to plug the tax evasion by the recipient of the in-kind incentive. Now, under Section 194R, if a business gives any other entity in-kind incentives, which is partly in cash or kind, then they are required to deduct a TDS. In case the benefit is wholly in kind, the person providing such a in-kind incentives is required to pay TDS on the value of such in-kind incentives out of his own pocket.
The ramifications of Section 194R on the healthcare industry will be substantial and widespread. Doctors have been receiving in-kind benefits from the pharma’s which includes free medicine samples, foreign and domestic tours to attend medical conferences, CME’s and other in-kind benefits. As per Section 194R when the pharma sponsors any activity or product to the doctors, they will have to pay TDS @ 10% on the value of such in-kind benefit. In other words the pharma’s will have to upload the PAN Card details of the doctors that have received the in-kind benefits. The in-kind benefit received by the doctor from all the pharma’s will be clubbed together along with the income of the doctor. Effectively as and when the pharma demands the PAN Card of the doctor in lieu of in-kind benefit the value of these in-kind benefit will be clubbed to the income of the doctor. In turn, the doctor will have to pay Income Tax on the value of the in-kind benefit received from pharma’s while filing their Income Tax returns.
Rahul Gupta
Chartered Accountant
Ishna Advisors India Pvt Ltd