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“Freebies” To Doctors Violates Law & Are Not Allowable As Deduction*

Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8-2012

It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the ‘Council’) which is a regulatory body constituted under the Medical Council Act, 1956.

2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing 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.

3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.

Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income.

4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action.

This may be brought to the notice of all the officers of the charge for necessary action.

*Title changed from “Medical Samples To Doctors Violates Law & Are Not Allowable As Deduction”


9 comments on ““Freebies” To Doctors Violates Law & Are Not Allowable As Deduction*
  1. Gagandeep says:

    The nature of effect of this circular (whether prospective or retrospective) is not specified. Is it possible for someone to confirm it, as this point can lead to a huge difference in the case of Medicine Manufacturing and Healthcare giants specifically listed companies ??

  2. S V Nahar says:

    Appears to be effect of Satyamev Jayate and CBDT will withdraw this circular, may be retrospectively, after some time.

  3. SANJAY PANDEY, ADVOCATE says:

    The word “FREEBIES” means something that is free (usually provided as part of a promotional scheme); so samples are also part of this circular.

  4. This circular of CBDT is most important because medicine industries is misusing this by giving samples to the Doctors. In practical maximum samples are sold in the market by the companies medical Representative. So, by this way State / country is losing their revenue. So, this practice must be stop.

  5. CA DEV KUMAR KOTHARI says:

    Samples are not freebies and not covered by circular. Therefore, it seems that the title of article is not proper – it should be corrected to avoid confusion.
    The circular is about freebies in nature of any Gift, Travel facility, Hospitality, Cash or monetary grant etc.
    Even without such circular, the value of such benefits is taxable as a benefit arising from profession, and if the freebies is used to carry profession then the same shall also be allowed as an expenditure. For example in case of a conference of medical practitioners, the expenses of attending conference may be allowable expenditure, in such case freebies will be receipt and total expenses including the portion met by others, will be allowable. However, in case of freebies in nature of personal and family trip, entire value of freebies will be taxable.

    Receiving commission, by way of referral fees, on medicines prescribed, diagnosis prescribed etc. and to earn more such commission Unnecessarily prescribing diagnosis, medicines and prolonged stay in hospitals/ nursing homes is really shocking and shameful for doctors.
    Freebies may be unethical in some circumstances, however whether freebies are illegal or not need to be examined closely in light of amended provisions and legality of such provisions.

    Why such commissions- the answer lies in underlying indiscipline and inactivity and corruption in government hospitals. If spending in government hospitals is efficient, if subordinate staff in government work fully, properly and diligently, the hospitals will be neat and clean, the doctors will find environment to work and will spend more time to take care of patients.
    Many patients go to private hospitals only because many of government hospitals are not not maintained neat and clean. The reason is political support to subordinate staff and workers of government hospitals which leads to working just few hours and few days.

    If government hospitals be neat and clean, the private hospitals may have to close down because patients will prefer to go to government hospitals.
    Therefore, one can say that corruption in private medical sector is because of massive corruption in government medical sector.

  6. Thiagu says:

    The caption says ” Samples”. But the circular didn’t say so. Gifts, Hospitalty, Cash etc., should be disallowed. Including “Samples” to the list may not be reqd. In fact, it would be disadvantageous to the manufacturer.

    Also, how about so called ” referral fee” paid by diagnostics labs to the Doctors. They should also be disallowed.

  7. The circular is rightly trying to control the allowance of expenditure which is incurred by the Pharmaceutical Companies to woo the Doctors to prescribe their medicines. The circular is not referring to distribution of medical samples ( as wrongly titled in the news item ) which is necessary for experimenting with the patients, but it is referring to free bees in the form of personal gifts , travel package, hospitality or monetary grants to Doctors or their associations, thereby discouraging the Companies from indulging in unethical practices. Doctors are supposed to prescribe medicines based on it’s effectiveness and not based on the quantum of freebees provided to them by the Companies. So far as taxability of such freebees in the hands of Doctors is concerned, section 28(vi) itself is very clear. However, how many Doctors show this as income and further what is the mechanism existing to catch it for being taxed ?

  8. k srinivasan says:

    Para 4 in circular is to create confusion as a policy.

  9. P.V.SRIRAM says:

    With due respect to CBDT this circular is an absurd one. How the doctors willl come to know about the medicine unless they have a sample of it. They also say that this will be taxed in doctors hands. This is very difficult to follow up. Before issuing any circular the practical difficulties are not at all considered by CBDT.

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