According to new regulations from the Central Board of Direct Taxes (CBDT), social media influencers and medical professionals who receive free goods as part of sales campaigns must pay a 10% tax deducted at source (TDS) on those advantages.
On July 1, 2022, the new rules will go into force. The Finance Act of 2020 includes the instructions to increase the tax base and ensure that those who benefit from sales promotions record this in their tax returns and pay a 10 percent TDS on the value of the benefit.
In order to accommodate this, the government revised the Finance Act of 2022 by adding Clause 58, which aims to add Section 194R to the Act.
"The proposed new section provides that the person responsible for providing to a resident any benefit or prerequisite, whether convertible into money or not, arising from such resident's business or the practice of a profession, shall, before providing such benefit, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit at the rate of 10% of the value or aggregate of the value of such benefit.
In the case of doctors, CBDT indicated that Section 194R would apply to the delivery of free samples to the hospital if doctors were obtaining free samples of medications while working in a hospital.
The guidelines of CBDT reads, "To illustrate, the free medicine sample may be provided by a company to a doctor who is an employee of a hospital. The TDS under Section 194R of the Act is required to be deducted by the company in the hands of the hospital as the benefit or perquisite is provided to the doctor on account of him being the employee of the hospital. Thus, in substance, the benefit or perquisite is provided to the hospital. The hospital can get a credit for tax deducted under Section 194R of the Act by furnishing its tax return. It is further clarified that the threshold of INR 20,000 in the second provision to sub-section (1) of Section 194R of the Act is also required to be seen with respect to the recipient entity."
"The facts of the case will determine whether this (the product offered for sales promotion activities in social media) is a benefit or perquisite. "For the purposes of section 194R of the Act (the TDS provision), a benefit or prerequisite that is a product, such as a car, mobile phone, outfit, or cosmetics, and that is returned to the manufacturing company after use for the purpose of rendering service, will not be treated as a benefit or prerequisite," the CBDT said.
Source: The Times Of India