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Social media influencers who have been enjoying free products from businesses for sales promotion will now have to pay the tax deducted at source (TDS) from July 1. The same applies to the doctors who receive free pharmaceutical products.

The Central Board of Direct Taxes (CBDT) has announced that the government will levy a 10 percent TDS on freebies. In case, the product is returned to the company after the job is done, then the TDS will not be levied on the product.

A 10 % TDS will be deducted on freebies received from business for sales promotion and will apply to social media influencers and doctors but if the equipment is returned back and not retained, TDS will not apply u/s 194R of the Act. Whether the equipment/product/freebies given are a benefit or perquisite will depend upon the facts of each individual case.”

“Whether this (the product given for sales promotion activity in social media) is benefit or perquisite will depend upon the facts of the case. In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics, etc and if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit or perquisite for the purposes of section 194R of the Act (the TDS provision),” stated CBDT.

Products like beauty products which are free samples will not be charged any money. However, TDS will apply to the products like cars, television, mobile phones, free tickets, foreign trips and other goodies given to promote a business.

Doctors have to pay TDS on the free medicines that they receive from pharmaceutical companies.

In such a case, it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately, the amount would get taxed in the hands of the employee and not in the hands of the hospital. Hospitals can get credit of tax deducted under section 194R of the Act by furnishing its tax return,” CBDT said.

Notably, the CBDT has also clarified that the regulations will be applicable to free samples provided by companies to doctors working in the hospitals. At first, the tax liability will be on the hospital, however, the same will shift to the doctor (employee) since the hospital will be at liberty to tax the perquisite to the employee and deduct tax accordingly. Therefore, the ultimate effect will be seen in the tax liability that is upon the employee and not the hospital since the hospital will be at liberty to claim credit of tax deducted whilst furnishing the tax returns,” elaborated Suvigya Awasthy, Associate Partner, PSL Advocates & Solicitors.


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