Can Doctors Accept Freebies or Gifts from Pharma Industry in India and What are its Tax Implications?

 

INTRODUCTION

 

Today, I will talk about the case of Apex Laboratories Pvt. Ltd. v. Deputy Commissioner of Income Tax, 2022 SCC OnLine SC 221, wherein the Hon’ble Supreme Court inter alia discussed why the expenses incurred by pharmaceutical entities for distribution of incentives or freebies to medical practitioners, are ineligible for any taxation related benefit.

 

MEDICAL ETHICS REGULATIONS

 

In this case, the Court explained the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, that provides that the medical practitioners are not allowed to receive the following from the pharmaceutical industry or its representatives: -

 

a. Gifts.

 

b. Travel Facilities – Neither domestic nor international travel facilities could be availed in any form whatsoever. Even the family members of the medical practitioners cannot be given such freebies by the pharmaceutical industry.

 

c. Hospitality – No form of hospitality can be extended to the medical practitioners or their family members.

 

d. Cash or monetary grants – No cash or monetary grants can be accepted by the medical practitioners under any pretext. Even the funding for medical research or study can be received only by following the appropriate laws in this regard in a transparent manner.

 

According to the Court, “the regulation further lays down corresponding action or sanction which can be taken against, or imposed upon, the medical practitioner for violation of each stipulation, based on the monetary value of the same. Thus, acceptance of freebies given by pharmaceutical companies is clearly an offence on part of the medical practitioner, punishable with varying consequences.”

 

TAX EXEMPTION BY PHARMA ENTITIES

 

 Thus, when a pharmaceutical entity claims income tax exemption relating to expenses incurred in providing any freebies to medical practitioners, then any such claim would be in direct contravention of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, since such freebies are explicitly prohibited under such regulations. And hence, any such claim of tax exemption would be inadmissible.

 

The Court went on to say that the value of freebies that has been enjoyed by the medical practitioners is also taxable as business income or income from other sources, as the case may be, and the Income Tax Department should examine the same and take appropriate action.

 

SUMMARY AND CONCLUSION

 

Therefore, in conclusion, following important points emerge: -

 

a. The medical practitioners are not allowed to receive any gifts, travel facilities, hospitality services, cash or monetary grants from the Pharma Industry.

 

b. The violation of the Regulations of 2002 by the medical practitioners is punishable with various consequences.

 

c. Claiming any income tax related exemption by pharmaceutical entities in relation to providing any freebies to medical practitioners is impermissible as the same is in direct contravention of the 2002 Regulations. And

 

d. The value of freebies that has been enjoyed by the medical practitioners is also taxable as business income or income from other sources, as the case may be.

 

Accordingly, I hope that the reasons explaining ineligibility of expenses for any taxation related benefit in relation to distribution of incentives or freebies to medical practitioners by pharma entities, are clear by now.