The Union Government has recently clarified that failing to deduct and pay 10 percent TDS on the value of freebies received by doctors, as required under Section 194R (TDS on benefit or perquisite in respect of business or profession) in the Income-tax Act, 1961, will attract jail term for up to 6 months and a sum of penalty.
This came during the budget for the year 2023-24, wherein, various amendments have been proposed for the taxpayers by the Union Finance Minister Nirmala Sitharaman.
Last year, the Central Board of Direct Taxes (CBDT) had 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.
However, the provisions for penalty and prosecution did not clearly mandated penalty or prosecution for a person who does not pay or fails to ensure compliance to the said Section.
To ensure highest level of compliance and adherence to Section 194R, lately, the Government has proposed to amend section 271C and section 276B of the Act by incorporating penalty and prosecution provisions pursuant to non-adherence of Section 194R (TDS on benefit or perquisite in respect of business or profession) effective from the 1st day of April, 2023.
With this, all Assessess need to be vigilant and cannot take these provisions lightly.
Section 271C is proposed to be amended to state that where a person fails to pay or ensure payment as required under Section 194R, then Section 271C which is a penalty provision, can get attracted.
Further, Section 276B refers to prosecution and corresponding amendments for non-compliance of Section 194R and Section 194S have been proposed in prosecution provisions as well.
After section 276A of the Income-tax Act, the following section shall be inserted, namely: —
"276B. If a person, without reasonable cause or excuse, fails to deduct or after deducting fails to pay the tax as required by or under the provisions of sub-section (9) of section 80E or Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which may extend to six months, and shall also be liable to fine which shall be not less than a sum calculated at the rate of fifteen per cent, per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid."
The move is going to cast a severe dent on the traditional pharma marketing practices across the country. The applicability of the new provision is likely to make handing out of freebies and even free samples to doctors less attractive, which comes as a major setback for pharma companies.
Medical Dialogues team had earlier reported that the new Finance Budget had clarified that any claims of expenses incurred while providing benefits to others that violate the provisions of Indian Medical Council Regulations, 2002 shall be inadmissible for a tax deduction. With this, pharma companies can no longer claim such expenditure as a business deduction, which in turn will jack up the taxable profits of a pharma company. The Government has also been considering to make the UCPMP mandatory for all pharmaceutical companies.
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