TDS imposed on gifts to social media influencers, free samples to doctors

According to the CBDT, if a social media influencer retains a product from the manufacturing company after using for the purpose of rendering service, then it will be treated as a benefit/perquisite under newly-introduced Section 194R of the IT Act.

The Central Board of Direct Taxes (CBDT) on Thursday issued detailed guidelines on the applicability of the new tax deducted at source (TDS) provisions that come into effect on July 1. 

Under the provision, benefits like free medical samples received by doctors and gifts retained by social media influencers will attract TDS under the new provisions related to benefits or perquisites received in a business or profession. 

During Budget 2022-23, the government announced provisions on TDS on benefits or perquisites to keep a check on tax revenue leakage. However, there were doubts around the provision which had required clarity. 

A section was introduced in the I-T Act which requires deduction of tax at source at the rate of 10 per cent by any person, providing any benefit or perquisite exceeding Rs 20,000 in a year to a resident, arising from the business or profession of such resident.

According to the CBDT, if a social media influencer retains a product from the manufacturing company after using for the purpose of rendering service, then it will be treated as a benefit/perquisite under newly-introduced Section 194R of the IT Act. 

However, if the product is not retained then said provision would not be applicable. 

For doctors, the tax body clarified that if they receive free samples of medicines while being employed at a hospital, the new tax provision would apply on distribution of free samples to the hospital. 

If a free medicine sample is provided by a company to a doctor who is an employee of the hospital, the TDS will be deducted by the company 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.

Section 194 R is applicable on events when a person gives incentives (other than discount, rebate) in the formof cash or kind, or a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets.

The tax department provided a breather on sales discount, cash discount and rebates allowed to customers by excluding them from the purview of the new section as their inclusion would put the seller into difficulties. 

However, incentives other than sales discount, dash discount and rebates will be covered. 

“Certain aspects, particularly applicability of withholding tax on reimbursement of OPE’s, benefits provided in cases of recipient not engaged in business or profession etc. could open up a host of practical issues which taxpayers should brace themselves with,” said Sudin Sabnis, partner, Nangia Andersen LLP.

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