Social media influencers must pay TDS on freebies; same goes for doctors [see guidelines]

The Central Board of Direct Taxes (CBDT) has shifted focus towards freebies, often costing thousands of rupees and used by businesses for promotions. Social media influencers and doctors are often sent freebies, which won't be so free soon enough.

As per a new rule, doctors and social media influencers will be required to pay tax deducted at source (TDS) on freebies they receive from businesses for sales promotion. The new CBDT guidelines explain the circumstances under which the new TDS provision will apply.

"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)," CBDT said.

However, if the product is retained, then it will be in the nature of benefit or perquisite and tax is required to be deducted accordingly under section 194R of the Act, CBDT said. Also, if you receive free samples, TDS will not apply. For instance, there won't be any charges if social media influencers receive a beauty sample product.

TDS for doctors/hospitals

In case of doctors, taxes will be applied to free medicines. If the doctor is employed with a hospital, the latter will treat it as a benefit and deduct income tax.

"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. Hospitals can get credit of tax deducted under section 194R of the Act by furnishing its tax return," CBDT explained.

The new TDS provision will come into effect on July 1, 2022, in a bid to expand the tax base.