New TDS rule to kick in from July 1, here are details

The TDS amount will be applicable to social media influencers if they retain a product given by the company as part of marketing efforts. However, TDS will not be applicable if the product is returned back to the company.

New Delhi: Central Board of Direct Taxes (CBDT) has notified that from July 1, a 10 per cent tax deducted at source (TDS) on freebies received from businesses for Sales Promotion will be applicable to Social Media Influencers as well as doctors. In this regard, the provision was introduced in the Finance Act of 2022 to widen the tax and to make sure the people who benefit from such sales promotion expenditure by businesses report it in their tax returns and also pay taxes applied on them. 

The TDS amount will be applicable to Social Media influencers if they retain a product given by the company as part of marketing efforts. However, TDS will not be applicable if the product is returned back to the company.

“Whether this (the product given for sales promotion activity in social media) is benefit or perquisite will depend upon the facts of the case. In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics etc. and if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit or perquisite for the purposes of section 194R of the Act (the TDS provision)," the CBDT clarified.

Furthermore, if such products are retained by the individuals, then it will be in the nature of benefit or perquisite and tax is required to be deducted as per the section 194R of the Act. The CBDT has also made it clear that no tax is required to be deducted under section 194R of the Income Tax Act on sales discount, cash discount an rebates allowed to customers. The scenario would be a bit twisted if free samples are given as the relaxation does not apply to them.

The conditions when TDS would be applicable include perquisites in cash, car, television, computers, gold coin, mobile phone, foreign trips and free tickets for events given to promote sales. 

For doctors, either working in hospitals or as a consultant, the samples of medicines given by the companies for free will also come under the purview of TDS. The TDS amount to be paid by the hospital if the doctor is an employee of the previous. 

The CBDT explained, “In such a case it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital. Hospital can get credit of tax deducted under section 194R of the Act by furnishing its tax return."