Budget 2022 disallows pharmaceutical companies to claim tax cut on freebies to doctors under section 37 of the act. It simply means such expenditure can not be claimed as business deduction, and it will be counted as taxable profit of pharmaceutical industries.
The memorandum explaining the provisions in the finance bill, 2022 stated that the claim of any expense incurred in providing above mentioned or similar benefits in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section sub- section (1) of section 37 of Act being an expense prohibited by the law.
In December 2009, the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) imposed a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries.
In August 2012, the Central Board of Direct Taxes declared that doctors who accept gifts from drug companies should declare the equivalent value as taxable business income while companies should reveal such expenditure on doctors in their annual accounts.
Also in 2013, Honorable High Court of Himachal Pradesh rejected petition of Confederation of Indian Pharmaceutical Industry stating that, The regulation of the Medical Council prohibiting medical practitioners from availing of freebies is a very salutary regulation which is in the interest of the patients and the public. This Court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries.
The latest amendment by the government clarifies that in order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert another explanation to further clarify that the expression "expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law".
This disallowance was directed to be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid benefits and claimed it as a deductible expense in its accounts against income.
This amendment will take effect from 1st April, 2022.
