Freebies for influencers, doctors will lead to tax deduction from July 1

Guwahati, June 21: Rules relating to tax deducted at source (TDS) will come into effect from July 1 and the Central Board of Direct Taxes (CBDT) has put out a set of guidelines in this regard, as per the guidelines doctors and social media influencers will be subject to a new rule which mandates a 10 per cent TDS on freebies they receive from businesses for sales.

The government had brought in a new section, 194R, in Budget 2022-23, requiring any person providing benefit or perquisite exceeding Rs. 20,000 in a year to a resident to deduct tax at source at 10 per cent where the recipient receives such perquisite from the business or the profession.

As per reports, the provision was introduced to widen the tax base and to ensure that those who benefit from such sales promotion expenditure by businesses report it in their tax returns and also pay tax.

In case of social media influencers if products like car, mobile, outfit, cosmetics etc, given to them as part of marketing efforts by a company is retained by them paying the TDS amount will be a must. However, the CBDT clarified that TDS will not apply if the equipment or product is returned to the company.

"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)," CBDT said. If the product is retained, then it will be in the nature of benefit or perquisite and tax is required to be deducted accordingly under section 194R of the Act, CBDT said.

Similarly, the section will also apply on doctors employed in a hospital if they are receiving free samples of medicines. In such cases, the hospital, as an employer could consider such free samples as taxable perquisite for employed doctors, and accordingly deduct tax.

But for doctors working as consultants with a hospital who are receiving free samples, the TDS would first apply on the hospital, which can then deduct tax from the consultant doctors, the report added.

However, section 194 R will not be applicable if the benefit or perquisite is provided to a government entity, like government hospital, not carrying on business or profession, said CBDT.

Nevertheless, CBDT has clarified that it has provided relaxation on sales discount, cash discount and rebates to customers, and excluded them from the purview of Section 194R. Accordingly, Section 194R will now apply to any seller giving incentives, other than discount or rebate, which are in cash or kind, for e.g., car, TV, computers, gold coin, mobile phone, sponsored trip, free ticket, or medicine samples to medical practitioners.