New TDS rule from July 1: Check new rules for gifts to influencers, medical samples to doctors

New Delhi: From July, a 10 per cent tax deducted at source (TDS) on freebies received from businesses for sales promotion will apply to social media influencers and doctors. The new TDS rule will take effect from July 1 and the Central Board of Direct Taxes (CBDT) has put out a set of guidelines in this regard.

The provision was introduced in the Finance Act of 2022 to widen the tax base and to ensure that those who benefit from such sales promotion expenditure by businesses report it in their tax returns and also pay tax. For social media influencers, paying the TDS amount will be a must if the equipment given for them as part of marketing efforts by a company is retained by the person. However, the CBDT clarified that TDS will not apply if the equipment is returned to the company.

“Whether this (the product given for sales promotion activity 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 or perquisite for the purposes of section 194R of the Act (the TDS provision)," the CBDT noted.

On the other hand, if it is kept by the individual, then it will be in the nature of benefit or perquisite and tax is required to be deducted accordingly under section 194R of the Act.

Moreover, the CBDT has clarified that no tax is required to be deducted under section 194R of the Income Tax Act on sales discount, cash discount and rebates allowed to customers. The scenario would be a bit twisted if free samples are given as the relaxation does not apply to them.

The instances when TDS would apply include perquisites in cash or in kind such as car, television, computers, gold coin, mobile phone, foreign trips and free tickets for events given to promote sales.

In the case of doctors, who are employees of a hospital, or are a consultant, if they receive free medicine sample by a company, it will be under the purview of TDS. The TDS will be cut in the hands of the hospital on account of the doctor being an employee of the hospital.

The CBDT explained, “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."