Pharma industry asks govt to exclude freebies to doctors from ambit of I-T

The pharmaceutical industry in the country has recommended to the Union Finance Minister to exclude freebies like medicine samples and product reminders meant for doctors from the ambit of Income Tax in the Union Budget 2023-24. In its recommendation to the Union Budget 2023-24, the Indian Drug Manufacturers Association (IDMA) has strongly recommended to the Union Finance Ministry to exclude freebies to doctors from the ambit of I-T.

The Union Finance Ministry, in a major setback to the pharmaceutical companies in the country, had early this year decided to bring gifts and other freebies given to the doctors by pharmaceutical companies under the ambit of taxation. The Finance Bill, 2022 clarified that the gifts and freebies to doctors shall not be treated as business expenditure under section 37 of the Income Tax Act, 1961. In its recommendation, the industry argues that distribution of free samples is directly related to business promotion activity of the pharmaceutical company and no benefit/perquisite arises to the doctors from such samples.

The industry further argues that Drugs and Cosmetics (D&C) Rules, 1945 also recognizes the practice of providing drugs for distribution to medical professionals as a free sample by providing specific labelling requirements, requiring such samples to be labelled with the words 'Physician's Sample – Not to be sold.

In order to boost the innovation and alternative drugs and raw material, the industry has recommended reinstating the weighted deduction to 200 per cent on the expenditure incurred on scientific research on in-house R&D facilities. Removal of section 206C (1H) in the IT Act and discontinuation of the provisions of section 145A in the IT Act are other issues which have been highlighted by the industry in its recommendation to the Union Budget. The provisions for section 206C (1H) of the IT Act applicable on sale of goods which were made applicable from October 1, 2020 have not been discontinued.

The government has introduced a new section 206C (1H) through Finance Act 2020 to extend the tax collection at source (TCS) provisions to the seller of goods. As per this provision, a seller whose turnover is above Rs 10 crore is required to collect tax, when he receives more than Rs 50 lakh from one buyer during a financial year. It has therefore been recommended to discontinue section 206C (1H) of the IT Act as 194Q covers all the transactions related to goods.

The industry has recommended discontinuing the provisions of section 145A as it becomes an onerous exercise requiring restatement of purchases, sales and inventory. Applicability of both the sections has created complexity and resulted issues faced by the industry in the proper applicability of Tax Deducted at Source (TDS) law. Further industry is required to monitor each and every transaction to avoid TDS and Tax Collection at Source (TCS) issues. Section 145A of the Income Tax Act provides that the valuation of purchase and sales of goods and inventory for the purpose of computation of income from business or profession shall be made on the basis of method of accounting regularly employed by the assessee but this shall be subject to certain adjustments.

The Finance Act 2022 inserted a new Section 194R in the IT Act, 1961 with effect from July 1, 2022. The new Section 194R makes the doctor liable for providing any benefit or perquisite to the patient or consumer in the form of tax deduction at source at 10 per cent, whether the benefit or perquisite is in cash or in kind. Domestic Companies opting for concessional tax rate under Section 115 BAA and Section 115 BAB are not eligible to claim deduction under Section 35(2AB) of the Act. It is also recommended to allow the above weighted deduction benefit under Section 35(2AB) of the Act even to those companies.

Under the provisions of Section 35(2AB) of the Income-tax Act, a company is allowed a weighted deduction at the rate of 200 per cent of expenditure (not being in the nature of cost of any land or building) incurred on approved in-house research and development facilities. Section 32AC of the IT Act provides a deduction of 15 per cent of the actual cost of new assets acquired and installed by a company, if the amount of investment exceeds Rs.25 crores. It has also been recommended that Corporate Social Responsibility (CSR) costs be allowed as a deduction under section 37 of the IT Act. The IT Act expressly stipulates that all expenditure incurred by companies in accordance with Section 135 of the Companies Act 2013 and the CSR Rules be allowed as a deduction under the law of the land.

(The author is a freelance journalist with varied experience in different fields)