Section 194 R of IT Act- Important for pharma companies

Even as Section 194 R under the Income Tax (IT) Act today provisions to penalize pharma companies offering freebies to doctors beyond a threshold limit of Rs 20,000 under the TDS laws, pharma industry is pulling out all the stops to comply with the stringent Section 194 R to avoid penal provisions and prosecution.

TDS section 194R mandates the person responsible for paying benefit/perquisite, arising from business or profession, to deduct tax at source. This section came into effect on 1 July, 2022 and the applicable TDS rate is 10%. Businesses or professionals should deduct TDS @10% if the monetary value of such gift or perquisites exceeds Rs. 20,000 during the financial year of each recipient.

As per 194R in Budget 2023, the amendment is proposed to be effective from 1st April, 2023. Accordingly, the pharma companies providing cash perquisites to their healthcare practitioners (HCPs), drug stockists and dealers may have to withhold tax under Section 194R of the IT Act.

Experts have recommended that there is an urgent need for all the stakeholders including the pharma field force to get sensitized and adhere to compliance as per Section 194R.

Non-applicability of TDS u/s 194R

  • This section is not applicable to the employees who are receiving any benefits from their employers i.e. (if an Employer-employee relationship exists) then it will be treated underĀ Section 192.
  • If the recipient is a Non-resident then tax shall be deducted underĀ Section 195.
  • If there is no business relationship then the tax will not be deducted.