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TDS ON REIMBURSEMENT (Income Tax)

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This query is : Resolved


( Author )
23 February 2008

Regarding query of TDS on reimb. exp. paid by C.H.A. on behalf of client like Custom Duty, Shipping Co. charges, Custom & Port charges etc., answer found is refer circular No.715-08/08/95 q.No.30 which say TDS should be deducted on this amts.

Now TDS on this reim. amt. is comes more than our actual agency charges which means. e.g. our agency charges (net income) is 3000/- per contract, but reimb. including cust duty paid is rs. 200000/- is comes more than 6000/- means we have earn our income by the way of refund from Income Tax. Is this resonable ??

In today's trend, for fast work, clients deposits amt of reim. directly in our bank a/c. from their city (core banking sys)and afterthat we r making payment on behalf of them, which shows that we worked only as a Mediator. But, TDS is also being deducted on this amt.

This amt. can't be considered as reimbursement exp. but we just paid as a mediator of two parties for getting work done fast.

In one seminar the Chief CIT also advised that TDS should not deducted on such type of reimb. pymts.

In above situation it is not possible to run business. A true fact : in previous year our gross income was 28 lac and net proift was 7 lac on which IT. comes abt.
2 Lacs. But TDS deducted by clients is 6 Lac.

Is there any clarification circular regarding this. Amt. paid as a mediator should not be considered as reimbusement of exp. and TDS should not be deducted on such amt. PLEASE HELP.


Late CA Sampat Jain

( Expert )
24 February 2008

The solution lies in section 197 which reads as follows:

Certificate for deduction at lower rate.

197. [Subject to rules made under sub-section (2A), 12[where, in the case of any income of any person [or sum payable to any person], income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 14[194,] 194A, 15[194C,] 194D, 15[194G] 16[, 194H] 17[, 194-I] 18[, 194J] 19[, 194K] [***] [, 194LA] and 195, the Assessing Officer is satisfied] that the total income [***] of the recipient justifies the deduction of income-tax [***] at any lower rates or no deduction of income-tax [***], as the case may be, the [Assessing] Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

(2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the [Assessing] Officer, deduct income-tax [***] at the rates specified in such certificate or deduct no tax, as the case may be.

[(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith


SHAILESH

( Author )
25 February 2008

THANKS FOR UR REPLY. BUT IT SEEMS THAT GUID. U PROVIDED IS NOT PERTAINED TO MY QUERY.

IN VERY SHORT WHY TDS IS DEDUCTED FROM OUR DEBIT NOTE (NOT INVOICE) AS THIS AMT IS PURELY PAID ON BEHALF OF OUR CLIENTS TO OTHERS AND WE ARE JUST MEDIATORS BETWEEN CLINT AND PARTY.



SHAILESH

( Author )
25 February 2008

THANKS FOR UR REPLY. BUT IT SEEMS THAT GUID. U PROVIDED IS NOT PERTAINED TO MY QUERY.

IN VERY SHORT WHY TDS IS DEDUCTED FROM OUR DEBIT NOTE (NOT INVOICE) AS THIS AMT IS PURELY PAID ON BEHALF OF OUR CLIENTS TO OTHERS AND WE ARE JUST MEDIATORS BETWEEN CLINT AND PARTY.



S.Srinivasaraghavan

( Expert )
27 February 2008

But what is the difficulty for you in obtaining a direct cheque to customs authority from your client?


SHAILESH

( Author )
27 February 2008

three difficulties

1) Fast Work: Customer All over India deposit directly in our bank a/c. (centralized banking system) and immediate we can paid it to customs.

2) In competetion market Customers prefers agent who can invest on behalf of them for long.

3) IMP: Not only custom duty but we have to paid to various concern day to day which amt and time of payment not decided. Like Insurance, CFS, Shipping THC & Detention etc.


SHAILESH

( Author )
27 February 2008

three difficulties

1) Fast Work: Customer All over India deposit directly in our bank a/c. (centralized banking system) and immediate we can paid it to customs.

2) In competetion market Customers prefers agent who can invest on behalf of them for long.

3) IMP: Not only custom duty but we have to paid to various concern day to day which amt and time of payment not decided. Like Insurance, CFS, Shipping THC & Detention etc.


S.Srinivasaraghavan

( Expert )
29 February 2008

The Board has through Circular No.715 dated August 8,1995 clarified that since Section 194J refers to "any sum paid", reimbursement of actual expenses cannot be deducted from the bill and that such reimbursement will also have to be taken into account in deducting tax at source.

However, the issue of whether tax deduction will be attracted where such expenses are claimed through a separate statement stands unclarified by the Board

It is felt that (In my opinion)probably if the expenses are claimed through a separate statement there will be no requirement to deduct tax at source, provided the deductor is satisfied that the expenses claimed as reimbursement are only the actual expenses incurred. If there is an element of profit, that is to say that if the reimbursement is not of actual expenses, tax will have to be deducted at source even if the expenses are claimed through a separate statement.
This position has to be tested.



SHAILESH

( Author )
03 March 2008

R/SRINIVASARAGHAVANJI........THANKS FOR REPLY. I READ THAT CIRCULAR. WE ARE GIVING SEPARATE DEBIT NOTE TO CLIENTS FOR AMT. PAID ON BEHALF OF THEM TO CUSTOM, PORT, SHIPPING CO., CFS ETC. AND WE PROVIDING THEM VOUCHERS, BILLS, CHALLANS FOR THE SAME SHOWING NO PROFIT ELEMENTS INSIDE IT. EVEN I.T. OFFICERS FROM THEIR SIDE PRESSURING THEM TO DEDUCT THE TAX FROM IT.

SO I REQUIRE IF SUCH NOTIFICATION / CLARIFICATION AVAILABLE FOR THE SAME TO RESOLVE OUR PROB.


S.Srinivasaraghavan

( Expert )
07 March 2008

No clarification to my knowledge.


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