10 percent TDS on Free Samples to doctors: Pharma Cos reach court, claim samples not freebies

New Delhi: In the light of the setback of the recent order of the government of imposing a 10% TDS to be applicable to all free samples given to doctors, pharma companies have now knocked the doors of the Karnataka High Court.

Individual pharmaceutical companies and the Karnataka Drugs and Pharmaceuticals Association have approached the High Court of Karnataka, Claiming that samples of medicines provided to doctors do not constitute 'freebies,'. They have challenged the June 16, 2022 circular issued by the Ministry of Finance by which it was directed that pharma companies have to deduct TDS (tax deduction at source) at ten percent of the value of the free samples provided by them to medical practitioners.

Medical Dialogues had earlier reported that in 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.

Stating that free samples should not be equated to freebies and perks, the companies have now decided to seek legal relief.