July 17, 2026

Expense On Freebies To Doctors Taxable: Supreme Court

By Sunil Garodia
First publised on 2022-02-23 13:44:30

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In 2012, the Central Board of Direct Taxes had issued a circular that disallowed pharmaceuticals and allied health sector companies from claiming freebies they provided to doctors and other medical professionals as claim under Section 37(1) of the I-T Act for business deduction. The pharma and other companies had contested this regularly. But on Tuesday, a division bench of the Supreme Court finally ruled in the matter and said that there will be no tax exemption for such freebies, by whatever name - incentives or business promotion expenses - called.

The court was categorical in saying that "doctors and pharmacists being complementary and supplementary to each other in the medical profession, a comprehensive view must be adopted to regulate their conduct in view of the contemporary statutory regimes and regulations." The court said that the law cannot come to the aid of a party that roots its cause of action in an immoral or illegal act.

The legal position is that although the practice is not illegal under any law, it is specifically prohibited under the Medical Council of India regulations. It is also immoral on part of doctors and other medical professionals to accept such freebies in order to promote the brands of the company.

The Supreme Court was of the view that ideally this practice should stop but even if the companies continued to give such 'incentives' to doctors, it will form a part of their income and they will have to pay applicable taxes under the Income Tax Act. The court upheld the circular issued by the CBDT in 2012 and dismissed the petition.

The medical profession is getting a bad name as doctors prescribe costly medicines by brand name after taking freebies from these companies. Similar and equally efficient medicines are available at lower cost in the market. Once a patient is prescribed a certain brand, he or she, being a layman, fears that the ailment will not be cured if he or she purchases another brand of the same composition. The law to mandate doctors to prescribe medicines by their generic name, although discussed so many times in the past, has been kept on hold for inexplicable reasons.