Expenditure on freebies for medical practitioners and their professional association’s incurred by pharmaceutical and allied health sector industries will not be allowable anymore as deductible expenditure towards taxable income. Those who accept the freebies will also be taxed for its value. This has been noted in the Circular No. 5/2012, dated 1-8-2012 issued by CBDT. The department has asked assessing officers to take appropriate actions.
Section 37(1) of Income Tax Act, 1961 provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.
Presently, Income Tax Department grants tax exemption to money spent on business promotion. Now onwards, the pharma and allied health sector companies cannot claim this benefit because the regulations prohibit it. The Medical Council of India has banned doctors and their associations from accepting freebies through the amendment of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, made on 10-12-2009. The freebies may include gifts, travel facilities, seminar memberships, hospitality and similar amenities extended by pharmaceutical and allied health sector industries to doctors and their professional associations.
The Assessing Officer can levy tax on the value of the gift or the money received as freebies by doctors. For instance, if a doctor received a fridge as a gift, its market value will be treated as his or her income.
The decision of the council and CBDT has been appreciated widely. Such regulations are essential for ethical marketing practices for pharmaceutical companies and to bring about self-regulation among doctors.