If the life of a social media influencer seemed all the more alluring—courtesy of the slew of swag bags that they receive on a daily—perhaps, you jinxed it. The Central Board of Direct Taxes (CBDT) has issued guidelines that will levy a 10 per cent tax on the freebies influencers and doctors obtain. However, if they do not retain the equipment given to them as part of marketing efforts by a company, the TDS will not apply. That said, free samples received by hospitals will not be exempt from TDS. Doctors, too, will have to shell out 10 per cent TDS for promoting medical equipment that they receive from pharmaceutical companies.
The CBDT clarified that there will be no cash discount, sales discount, or rebate, under section 194R of the Income Tax Act. And the tax will be levied on the benefits endowed in cash or kind, including automobiles, electronic devices, free tickets, or foreign trips. This provision—which will come into effect 1st July onward—was introduced in the Finance Act of 2022 by the Government of India to widen the tax base and ensure that those who benefit from such sales promotion expenditure by businesses report it in their tax returns and pay tax on what the benefit is worth.
Free medicine samples provided by a company to a doctor—who is an employee of a hospital or a consultant—are also covered by the provision. "In such a case, it would first be taxable in the hands of the hospital, and then allowed as a deduction in salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital. The hospital can get a credit of tax deducted under section 194R of the Act by furnishing its tax return," the CBDT said.
"While the CBDT circular provides relief to manufacturers, dealers, and distributors, by excluding tax to be withheld on sales discount, cash discount, and rebates, the applicability of withholding tax provisions to free samples will have a wide impact. Several aspects such as the definition of benefit or perquisite, withholding tax on loyalty points, wallet money, or online credit which expires, remain unaddressed. These aspects may require taxpayers to take positions in the absence of specific clarification," the PwC added in an analysis.