Drug Makers Urge CBDT To Exclude Free Medical Samples From Ambit Of IT Act


Mumbai : The drug companies have urged the Central Board of Direct Taxes (CBDT) to keep free medicine samples provided by them to medical practitioners and hospitals outside the purview of Section 194R of the Income Tax Act, 1961 as the same does not benefit them.

Section 194R, effective from July 1, 2022, provides for tax deduction at the rate of 10 per cent of the value or aggregate of value of any benefit or perquisite, whether convertible into money or not, provided to a resident arising from carrying out of a business or exercising of a profession by such resident.

“Free medical samples provided to hospitals or doctors are not ‘benefits’ or ‘perquisites’ in the hands of doctors. Such free medical samples are statutorily required to be used by the doctors for clinical evaluation purposes/testing the efficacy of the drugs by giving them to patients free of cost and cannot be sold or monetized by them. Accordingly, such free medical samples are not consumed by the doctors for any personal benefit nor they can earn any income by selling such samples to the patients. Such free medical samples are passed on the patients free of cost and the benefit if at all any is accruing to the patients which cannot be subjected to TDS under Section 194R as such benefit is not arising to the patients from any business or profession,” said Indian Drug Manufacturers’ Association (IDMA) in a representation to CBDT.

It is a known fact that the free sample of medicines supplied to doctors is done for promotion of the product of the pharmaceutical company. When a new product is launched, the doctors through the free sample provided, test the efficacy of the new drug launched in the market, give necessary inputs regarding the use and effectiveness etc. of the product. Provision of free samples help impart knowledge to other doctors about the new medicine/product coming into the relevant practice of their profession. Therefore, distribution of free samples is directly related to business promotion activity of the pharmaceutical company and no benefit/perquisite arises to the doctors from such samples, the industry body said.

“Providing samples of pharmaceutical products is not prohibited under either the Indian Medical Council (Professional Conduct, Etiquette and Ethics), Regulations 2002 (MCI Code) or the Uniform Code of Pharmaceutical Marketing Practices by the Department of Pharmaceuticals, 2014 (UCPMP) or 2019 Organization of Pharmaceutical Producers of India (OPPI) Code of Practice. The UCPMP prescribes guidelines under which medical samples should be dispensed which ensure that they are used strictly for clinical evaluation purposes and each sample shall be marked “free medical sample – not for sale”. Even the draft Uniform Code for Medical Device Marketing Practices (UCMDMP) published for stakeholder consultation on March 16, 2022 lays down guidelines to ensure that medical devices are distributed as samples for evaluation purposes only. The Drugs and Cosmetics Rules, 1945 also recognizes the practice of providing drugs for distribution to medical professionals as a free sample by providing specific labelling requirements, requiring such samples to be labelled with the words ‘Physician’s Sample – Not to be sold,” it stated.

Talking about practical challenges for implementation of Section 194R, IDMA said “The receipt of free medicine samples is not treated as income taxable under Section 28(iv) of the Income-tax Act for the doctors as the said samples are not consumed by them and passed on to the patients or discarded in other cases. Accordingly, the doctors may refuse to provide their PAN number to the pharmaceutical companies or even receive any such free samples from the companies. If the doctors refuse to receive free medical samples from the pharmaceutical companies, it will be extremely challenging for any company to introduce new drugs into the market or test its efficacy or even increase knowledge about their products in the market. Such measures in turn will impact the patients and humanity at large and therefore should be addressed at the earliest. Alternatively, if the TDS is grossed up by the pharmaceutical company, then it will significantly increase the additional cost burden on the industry which may in turn lead to increase in the price of the medicines and therefore again have an impact on the patients and humanity at large.”

In view of all the above, the industry body submitted that applicability of TDS under Section 194R will cause immense practical difficulties for both the pharmaceutical companies and the doctors and accordingly suitable clarification be issued at the earliest for excluding free medicine samples from the TDS ambit.

Besides free drug samples, it said various pharmaceutical companies also provide small value items such as pens, calendars, notepads, files, etc. to various doctors/hospitals/stockists/vendors/distributors/retailers, etc. which contain the logo of such companies. Such promotional expenditure is incurred only to aid promotion of provider’s products and create market awareness about the medicines or drugs of the pharmaceutical company. Such brand reminders should be outside the ambit of TDS under Section 194R, the industry body added.


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