Deduction of freebies by the Pharma Companies

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Deduction of freebies by the pharma companies to the Doctors

allowability of freebies by pharma companies to doctors

The Supreme Court (SC) on 22nd February 2022 in the case of M/s Apex Laboratories Pvt. Ltd passed a verdict that granting freebies/gifts to doctors by pharmaceutical companies to promote sales of medicines is “clearly prohibited by law". Apex court also dismissed plea by pharma company seeking deduction under the Income Tax Act on account of giving incentives/gifts to medical practitioners i.e. deduction of expenditure incurred by way of gifts/freebies etc.

The court said that giving gifts to doctors by pharmaceutical companies is prohibited under the purview of law and in such a situation tax benefit under section 37(a) of the Income Tax Act cannot be claimed. The top court said that by doing so, it would completely affect the public policy.

Explanation 1 to section 37 also prohibits deduction of expenses which are incurred for any purpose which is prohibited by law.

Also, on 01.08.2012, the Central Board of Direct Taxes (hereinafter, “CBDT”) had issued a circular 5/2012, which clarified that expenses incurred by pharmaceutical and allied health sector industries for distribution of incentives (i.e., “freebies”) to medical practitioners are ineligible for the benefit of Explanation 1 to Section 37(1), which denies the application of the benefit for any purpose which is an ‘offence’ or ‘prohibited by law.

SPECIAL LEAVE PETITION (CIVIL) NO. 23207 OF 2019 - Read here

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