Freight difference vs commission
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
22 October 2016
A person carrying business on freight difference or commission basis books a road transport vehicle or good carrier on hire for Rs.100 i.e purchase and charges freight charges to consignee of Rs.105. Purchase freight charges are paid in cash and received in bank instruments only.Considering the above if such individual is in receipt of 1crore or more in aggregate for FY 2015-16 in banking transactions would he be liable to audit.Also the individual intends to treat the difference as commission income.Please explain freight difference Vs commission income with reference to above. consignee remains the same in 80% cases.
Querist : Anonymous
Querist :
Anonymous
(Querist)
22 October 2016
Please help and thanks in advance.
25 July 2024
In the scenario you described, let's break down the concepts of "freight difference" and "commission income":
**1. Freight Difference:**
- Freight difference refers to the difference between the amount paid for hiring a road transport vehicle or goods carrier and the amount charged to the consignee for freight services.
- Example: If the individual purchases freight services for Rs. 100 and charges the consignee Rs. 105, the freight difference is Rs. 5.
**2. Commission Income:**
- Commission income, on the other hand, is earned by acting as an intermediary or agent in arranging freight services between a carrier (like a road transport vehicle) and a consignee. The income is typically a percentage of the freight charges collected from the consignee.
- Example: If the individual charges Rs. 5 as commission on arranging the freight service (irrespective of the actual freight cost), this Rs. 5 would be commission income.
**Audit Liability:**
- Under the Income Tax Act in many jurisdictions, including India, an individual or business is required to get their accounts audited if their total sales, turnover, or gross receipts exceed Rs. 1 crore in a financial year (FY 2015-16 in your case).
- In your scenario, if the individual is receiving Rs. 1 crore or more in aggregate banking transactions (considering both freight difference and commission income), they would likely meet the threshold for audit under the Income Tax Act.
**Differentiation:**
- **Freight Difference:** This is the profit margin earned on the actual cost of freight services. It's the difference between what the individual pays for hiring a vehicle and what they charge the consignee.
- **Commission Income:** This is the income earned for acting as an intermediary or agent in arranging freight services. It is typically a percentage or fixed amount based on the freight charges collected from the consignee.
**Tax Treatment:**
- **Freight Difference:** Usually treated as trading income or business income, subject to regular income tax rates applicable to business income.
- **Commission Income:** Also treated as business income, subject to income tax.
**Conclusion:**
- If the individual's aggregate banking transactions exceed Rs. 1 crore in FY 2015-16 due to earnings from both freight difference and commission income, they would likely be required to undergo audit under the Income Tax Act.
- It's advisable for the individual to maintain detailed records, including invoices, receipts, and banking transactions, to accurately compute their income and comply with tax audit requirements.
For precise guidance tailored to your specific circumstances and jurisdiction, consulting with a qualified tax advisor or chartered accountant would be beneficial. They can provide detailed advice on tax compliance, audit requirements, and proper accounting practices.
**1. Freight Difference:**
- Freight difference refers to the difference between the amount paid for hiring a road transport vehicle or goods carrier and the amount charged to the consignee for freight services.
- Example: If the individual purchases freight services for Rs. 100 and charges the consignee Rs. 105, the freight difference is Rs. 5.
**2. Commission Income:**
- Commission income, on the other hand, is earned by acting as an intermediary or agent in arranging freight services between a carrier (like a road transport vehicle) and a consignee. The income is typically a percentage of the freight charges collected from the consignee.
- Example: If the individual charges Rs. 5 as commission on arranging the freight service (irrespective of the actual freight cost), this Rs. 5 would be commission income.
**Audit Liability:**
- Under the Income Tax Act in many jurisdictions, including India, an individual or business is required to get their accounts audited if their total sales, turnover, or gross receipts exceed Rs. 1 crore in a financial year (FY 2015-16 in your case).
- In your scenario, if the individual is receiving Rs. 1 crore or more in aggregate banking transactions (considering both freight difference and commission income), they would likely meet the threshold for audit under the Income Tax Act.
**Differentiation:**
- **Freight Difference:** This is the profit margin earned on the actual cost of freight services. It's the difference between what the individual pays for hiring a vehicle and what they charge the consignee.
- **Commission Income:** This is the income earned for acting as an intermediary or agent in arranging freight services. It is typically a percentage or fixed amount based on the freight charges collected from the consignee.
**Tax Treatment:**
- **Freight Difference:** Usually treated as trading income or business income, subject to regular income tax rates applicable to business income.
- **Commission Income:** Also treated as business income, subject to income tax.
**Conclusion:**
- If the individual's aggregate banking transactions exceed Rs. 1 crore in FY 2015-16 due to earnings from both freight difference and commission income, they would likely be required to undergo audit under the Income Tax Act.
- It's advisable for the individual to maintain detailed records, including invoices, receipts, and banking transactions, to accurately compute their income and comply with tax audit requirements.
For precise guidance tailored to your specific circumstances and jurisdiction, consulting with a qualified tax advisor or chartered accountant would be beneficial. They can provide detailed advice on tax compliance, audit requirements, and proper accounting practices.
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