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Pharma manufacturers’ body moves Karnataka HC against treating free samples of medicines given to doctors as ‘freebies’ under Income Tax Act

Ministry of Finance had said that drug manufacturers will have to deduct 10% tax for the value of free samples of medicines

September 29, 2022 10:50 pm | Updated September 30, 2022 12:31 am IST - Bengaluru

The petitioners have contended that “the free sample of medicines given to the medical practitioners is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs”.

The petitioners have contended that “the free sample of medicines given to the medical practitioners is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs”. | Photo Credit: Getty Images/iStockphoto

The High Court of Karnataka on Thursday ordered issue of notice to the Central government on a PIL petition filed by the Karnataka Drugs and Pharmaceuticals Association, Bengaluru, and a few individual dugs manufacturing companies, seeking a declaration from the court that free distribution of medicine samples to the medical practitioners does not amount to freebies under the Income Tax Act, 1961.

The petitioners also questioned the legality of a circular, issued on June 16, 2022, by the Ministry of Finance stating that companies will have to deduct tax at source (TDS) for the value of the free samples of medicines given to the medical practitioners under Section 194R of the I-T Act, which deals with deduction of 10% income tax at source on benefit or perquisite in respect of business or profession.

A Division Bench, comprising acting Chief Justice Alok Aradhe and Justice S. Vishwajith Shetty, adjourned further hearing after ordering issue of notice to the Ministry of Finance.

The petitioners have contended that “the free sample of medicines given to the medical practitioners is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors or for promotion of its products.”

It has been claimed in the petition that pharmaceutical companies can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc.

“The main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doctors in treating the patients as well as the pharmaceutical companies, and in this background the value of free samples of medicines given to physicians by pharmaceutical companies, cannot be treated as freebies,” the petitioners have claimed.

Terming the circular as illegal and without any rationale, the petitioners have contended that authorities have grossly erred in grouping free samples of medicine given to medical practitioners with other freebies like TV, computers, gold coins, mobiles, free air tickets, cash or kind for deduction of 10% income tax at source on the value of such free samples of medicines provided to the doctors.

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