Engagement in the form of free samples, business trips and vouchers is perceived as a freebie under Section 194 R

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Compliance with the strict Section 194 R under TDS laws of the Income Tax (IT) Act has become the prime focus for pharma companies today. The latter has gone on an aggressive training spree for medical representatives (MRs) to ensure their engagements with doctors fall in line with the taxation act.

Section 194 R of the IT Act which is aligned with the Uniform Code for Pharmaceutical Marketing Practices (UCPMP) code lays down guidelines for the pharma companies with respect to their engagement with healthcare practitioners (HCPs) or doctors.

This engagement in the form of free samples, business trips and vouchers is perceived as a freebie under Section 194 R and therefore attracts the liability to pay the tax deducted at source (TDS) by the pharma company on behalf of the recipient or the doctor.

Traditionally, pharma companies have been engaging doctors by inviting them to a conference, making them aware of medicinal products, and sharing with them free samples and brand reminders amongst other ways of engagement.

These deliberations were part of a workshop on ‘Pharma Sales Force Effectiveness and Automation’ recently held in Mumbai. The one-day event was organised by Bluetech Media with Sharpsell, SmartWinnr, Cirrius, G-CUBE and Multiplier AI as partners. Ashish Chauhan, Director, BlueTech Media conducted proceedings during the event.

TDS section 194R mandates the person responsible for paying benefit/perquisite, arising from business or profession, to deduct tax at source. This section came into effect on July 1, 2022, and the applicable TDS rate is 10 per cent. Businesses or professionals should deduct 10 per cent tax if the monetary value of such gift or perquisites exceeds Rs. 20,000 during the financial year of each recipient.

The government had put in place the voluntary in-nature UCPMP code for pharmaceutical companies. This came into effect on January 1, 2015, to prevent unethical practices by pharmaceutical companies. It governs the conduct of pharmaceutical companies in their marketing practices, duly covering various aspects such as medical representatives, textual and audio-visual promotional materials, samples, gifts, etc. Further, the code establishes relationships with healthcare professionals, wherein the provisions related to travel facilities, hospitality and cash or monetary grants to physicians or their families have been elaborated.

Kapil Kuwelker, Founder and CEO, Cirrius Group, Phyzil Pharma CRM points out, “There are a lot of aspects to discover especially what amounts to benefits and how to manage the liability of the pharma company”.  

“Government perceives physician samples as a freebie but volume discounts and trade discounts are not falling under the radar of Section 194 R. A lot of sensitisation is required at the moment to demystify the complexities around benefits for HCPs,” explained Sneha Agarwal, Director, PWC, India.

“The other challenging area the companies are facing is that HCPs are reluctant to share their PAN numbers required for compliance process and protocol with respect to Section 194 R,” said Suruchi Rajput, Head of Internal Audit and Compliance, JB Pharma.

Experts have recommended that there is an urgent need for training all the stakeholders including the pharma field force to get sensitised and adhere to compliance as per Section 194R.

“Since the Government, now, perceives physician samples as a freebie and will be considered under the ambit of Section 194 R, we are tracking conference expenses and incentives like vouchers for dealers, channel partners and HCPs. We also have started tracking the samples through a 5G system to gain more accountability and transparency,” explained Suruchi Rajput.

Rajput added, “Today we are tracking SAP data and ERP data versus what is distributed through MRs and a reconciliation is done to ensure that whatever is sent out is reaching the HCPs. Based on this distribution, we do an allocation. Allocation means HCP code wise how much value of inputs, brand reminders and samples have gone to the concerned HCPs. We ask for PANs and if not then we pay the TDS”.

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