Credit card transactions

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Rachit (Querist)
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29 March 2012 Re: Credit card Transactions involving incidence of TDS.

Facts:-

A Retail merchant swipes a credit card for receiving payment from customer. The bill details and amount are then forwarded to the acquiring bank, which makes payment of the bill amount to the retail merchant after withholding its discount amount for providing this service to the retail merchant.

Query:-

Whether the discount so withheld by the acquiring banker be treated as being in the nature of commission, liable for deduction of tax u/s. 194H?

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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29 March 2012 NO, Credit card commission is nothing but a settlement/service charges/processing fees/discount for making immediate payment towards Credit Card Sales.

It can in no way be considered as commission. The bank is not my servant/agent. It is providing me the service.
The charges which are collected is received beacuase it is making immediate payment and the seller is not required to sell the goods on credit basis.

Further, since the amount have already been appropriated by the bank towards such service, how will I deduct the tax!!! The Source of the income iens with Bank and when source of income is with bank then it is not possible to deduct the tax at source.

Rachit

Rachit (Querist)
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02 April 2012 Actually we are in receipt of show cause notice in this respect.

The Department's contention is that the acquiring bank renders services for recovery of the bill amount to the retail merchant and hence acts as an agent of the retail merchant. Therefore, the discount is in the nature of commission which is withheld by the acquiring bank while making payment to the retail merchant. Hence the same should be subjected to TDS @ 10% u/s. 194H

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