8.5K pharma firms claim tax benefits for promotions, gifts to doctors

The income tax (I-T) department has informed a division Bench of the Madras High Court that 8,667 pharma companies claimed tax deduction under ‘sales promotion expenses’ and ‘gifts’ during assessment year 2019-20.

The information was filed in a matter where a division Bench, comprising Justice N Kirubakaran and Justice P Velmurugan, took suo motu cognizance to consider the larger issue of bribing doctors and overpricing of drugs by pharmaceutical companies.

When the matter was heard earlier, the Bench had called for various details from the Centre, the National Pharmaceutical Pricing Authority (NPPA) and the Medical Council of India (MCI).

These include steps taken against medical practitioners accepting hospitality of pharma companies and measures taken by the government against overpricing of drugs. Also, include how many pharmaceutical companies claimed deduction to promote their medicine by providing gifts, travel facilities, hospitality, cash or monetary grant to doctors. The Bench also sought to know whether the income tax department is regularly informing the Centre and the NPPA about companies which claim deduction on sales promotion (payments and incentives to doctors) and on overpricing of drugs.

Earlier this week, the I-T department revealed that about 1,410 companies under form ITR-3, 1,915 companies under ITR-5 and 5,342 firms under ITR-6 claimed deduction under sales promotion expenses and gifts during assessment year 2019-20.

Karthik Ranganathan, standing counsel, appearing for the I-T department, informed the court that a letter has been issued by the Central Board of Direct Taxes to all principal chief commissioners and director generals of income tax

(investigation) to pass on information continuously regarding overpricing and sales promotion expenses based on I-T claims. The information will have to be provided to the MCI and the NPPA.

The court further asked the central government to submit details on how many pharmaceutical companies existed in 2015 and how many of them have claimed deduction towards promotional expenses from that year.

The matter will come up again in court on Monday.

The issue came up while the court was hearing a tax dispute between the I-T department and a pharma company, in which the firm claimed an amount towards sales promotion.