Pharmaceutical manufacturers’ body urges HC not to treat free drug samples given to doctors as ‘free’ under the Income Tax Act

The Ministry of Finance says drugmakers will have to deduct a 10% tax on the value of free drug samples

The Ministry of Finance says drugmakers will have to deduct a 10% tax on the value of free drug samples

The Karnataka High Court on Thursday ordered the publication of a notice to the central government on a PIL petition filed by the Karnataka Drugs and Pharmaceuticals Association, Bengaluru, and a few individual drug manufacturing companies, seeking a declaration from the court that the distribution free drug samples to physicians does not amount to gifts under the Income Tax Act 1961.

The petitioners have also questioned the legality of a circular, issued on June 16, 2022, by the Ministry of Finance indicating that companies will have to withhold tax at source (TDS) on the value of free samples of medicines given to doctors under Article 194R of the IT law, which deals with the deduction of 10% income tax at source on benefits or indirect benefits related to a business or profession.

A Divisional Bench, consisting of Acting Chief Justice Alok Aradhe and Justice S. Vishwajith Shetty, adjourned a new hearing after ordering the issuance of a notice to the Ministry of Finance.

The petitioners argued that “the free sample of drugs given to doctors is only there to prove the effectiveness and establish doctors’ confidence in the quality of the drugs. Again, this cannot be considered as gifts given to doctors or for the promotion of its products.

It was claimed in the petition that pharmaceutical companies can only promote its sale and its brand by organizing seminars, conferences and thus making doctors aware of new research in the medical field and therapeutic fields, etc.

“The main purpose of these conferences and seminars is to update physicians on the latest developments, which is beneficial to physicians in the treatment of patients as well as to pharmaceutical companies, and in this context, the value of free samples drugs given to doctors by pharmaceutical companies, cannot be treated as gifts,” the petitioners assert.

Calling the circular illegal and without any justification, the petitioners claimed that the authorities had made a serious mistake by bundling free samples of drugs given to doctors with other gifts such as televisions, computers, coins gold, cell phones, free plane tickets, money or cash for withholding 10% income tax on the value of these free drug samples provided to doctors.

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