If you’re a physician or social media influencer, then you’ll have to observe the brand new earnings tax rule which comes into impact subsequent month and makes a ten per cent tax deducted at supply (TDS) necessary on the freebies obtained from gross sales promotions.
The Central Board of Direct Taxes (CBDT) final week issued pointers on the applicability of recent TDS provisions relating to advantages obtained in a enterprise or career and stated that such perquisites can both be in money or type or partly in each of those types. It stated that the payer/deductor needn’t test the taxability of the sum within the palms of the recipient, and the character of the asset given as profit or perquisite shouldn’t be related. Even capital property given as profit or perquisite are coated inside the scope of Section 194R.
Section 194R shall apply to sellers giving incentives, apart from reductions or rebates, that are in money or type e.g., automotive, TV, computer systems, gold coin, cell phone, sponsored journey, free tickets, medication samples to medical practitioners.
The pointers clarify the circumstances during which the brand new TDS provision which kicks in from July 1 will apply. This new TDS provision was launched in Budget 2022-23 to broaden the tax base and be certain that these beneficiaries of such kind of gross sales promotion expenditure by companies, report it of their tax returns and pay tax on what the profit is value.
A brand new part, Section 194R, within the I-T Act was introduced during which requires deduction of tax at supply on the charge of 10 per cent by any particular person, offering any profit or perquisite exceeding Rs 20,000 in a 12 months to a resident, arising from the enterprise or career of such resident.
In the case of social media influencers, they are going to be answerable for TDS if the product allotted to them by an organization for its advertising and marketing efforts is retained by the person. However, the TDS won’t apply if the product is returned to the corporate, CBDT stated.
“Whether this (product given for promotion activities 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/perquisite for the purposes of section 194R of the Act. However, if the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act,” the CBDT notification defined.
The CBDT has additionally clarified in its round that no tax shall be required to be deducted underneath part 194R of the Income Tax Act on gross sales low cost, money low cost and rebates allowed to prospects. However, the situation would get a little bit twisted if free samples are given as the relief doesn’t apply to them.
In the case of docs, CBDT clarified that if docs are receiving free samples of medicines whereas employed in a hospital, Section 194R would apply on the distribution of free samples to the hospital. The hospital as an employer might deal with such samples as taxable perquisite for workers and deduct tax underneath Section 192. In such circumstances, the brink of Rs 20,000 needs to be seen with respect to the hospital.
“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 hospital as the benefit/perquisite is provided to the doctor on account of him being the employee of the hospital. Thus, in substance, the benefit/perquisite is provided to the hospital. The hospital may subsequently treat this benefit/perquisite as the perquisite given to its employees (if the person who used it is his employee) under section 17 of the Act and deduct tax under section 192 of the Act. In such a case it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital. Hospital can get credit of tax deducted under section 194R of the Act by furnishing its tax return. It is further clarified that the threshold of twenty thousand rupees in the second proviso to sub-section (I) of section 194R of the Act is also required to be seen with respect to the recipient entity,” the rules learn.
For these docs who’re working as consultants with a hospital and receiving free samples, TDS would ideally apply on the hospital first, which in flip would require to deduct tax underneath Section 194R with regard to marketing consultant docs. To take away this problem, CBDT clarified that in its place, the unique profit or perquisite supplier might straight deduct tax underneath Section 194R with regard to the marketing consultant physician as a recipient.
Apart from the above, CBDT has knowledgeable that Section 194R won’t apply if the profit or perquisite is supplied to a authorities entity, like a authorities hospital, not carrying on enterprise or career.