TDS (MOST URGENT)

This query is : Resolved

SHAILESH (Querist)
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27 March 2009 Earlier I not get solution of this so after long time again i presenting my query. I am Custom House Agent. Per contract my commission is Rs.3500/- fixed for which i raising bill and tds deducted by client is @ 11.33%. Now i have to paid some dues on behalf of clients. e.g. Custom duty 500000/- + Govt Stamp duty 10000/- + Port Charges 10000/- + Foreign Shipping Charge 10000/- total : 530000/- paying on behalf of client for which we are raising separate debit note alongwith evidences/bills/receipts of the above pymnt we made on behalf of them and paying this after applicable TDS. But again our clients deducts tax at source on this debit note amt @ 2.266% on 530000/- which we paid on behalf of them only as frontman or mediater between to concern. in this debit note amt no income/profit factor affects to us. But TDS deducted by our client 12000/-. Now our income is only 3000/- on which net profit is only 1000/- and on which my tax liability is comes only for 337/- but TDS is 340/- + 12000/-. since last 3 years tds is more than net profit. NEITHER CLIENTS MADE THE ABOVE PYMT DRECITLY NOR THEY MAKING PYMT WITHOUT TDS SAYING AS PER CIRCULAR WHICH SAYS ANY SUM PAID TO CONTRACT IS SUBJECT TO TDS.

Pls. help me is there any clarification/circular/notification or case law which we present to our clinets to say please do not deduct TDS from debit note for which we paid purely dues on behalf of them.

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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27 March 2009 I dont know exactly the circuler but it is not covered by any section under TDS. You are making payment on behalf of company so it is non other then making payment by company itself. Suppose if company would have paid the same then there would not have any Q of TDS.
So indirectly it should not be liable to TDS.
Also ask your comapny under which section they are deducting the TDS.

CA J M Pattanayak

CA J M Pattanayak (Expert)
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27 March 2009 TDS is always deductible as you are making payment and claiming the same from the client. In any case you can claim refund.
If you wan them not to deduct TDS from your payment as your income is less you can approach your Assessing Officer and show your Income and expenses. And the Assessing officer can provide you a letter where he will mention a lower rate of TDS or payment without TDS.

But for each payment to you TDS has to be deducted else the client cant claim the expenses.

SHAILESH

SHAILESH (Querist)
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31 March 2009 k.attn: Shri CA Pattnayakji

the amt. we claiming from our client is govt. duty and port charge and foreign shipping co. charge. there is no question of tds on govt. dues and pymet to foreign shipping co. and on port charges we are making pymt to port after deducting applicable tds. TDS occurs twice.

the matter was also discussed with our Chief Commissioner of IT, Rajkot in seminar of chamber of commerece and they also told that the tds should NOT BE deducted on the amt claiming from clients as said above.

However there is no any written clarification in this regard there is no escape for us. and today on 31 Mar 2009 our tds gone to double of our net profit.

At higher level what we can do.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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27 July 2025 Hi, and thank you for providing detailed background—this is a very real and challenging issue many agents and service providers face when handling **reimbursements** on behalf of clients.

Let’s address this thoroughly:

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## ✅ **Key Issue:**

You are a **Custom House Agent (CHA)** who:

* Earns a **fixed commission** (Rs. 3,500).
* Also pays **third-party charges** (e.g., customs duty, port charges, shipping costs) **on behalf of your client**.
* Then raises a **debit note** to recover these exact out-of-pocket expenses **with bills/receipts attached**.

Despite these being pure **reimbursements**, your client deducts **TDS** on the **entire amount**, including the reimbursed costs.

---

## 🔍 **Is TDS Deductible on Reimbursement Amounts?**

### ➤ **Answer: No, if proper documentation exists and these are actual reimbursements.**

But many clients **still deduct TDS** out of caution or misinterpretation of TDS rules.

---

## ⚖️ Legal View & CBDT Clarification

### ✅ **CBDT Circular No. 715, dated 8 Aug 1995 – Question 30:**

> **Q. Whether TDS is applicable on the gross amount of the bill including reimbursements or only on the service charges?**
> **A. TDS is required to be made on the gross amount of the bill including reimbursements if such reimbursements are part of the contract.**

This has led to **confusion**, because clients often interpret this as *TDS must always be deducted*, even on reimbursements.

---

### ✅ **However – Judicial Interpretations Provide Relief**

Several High Courts and Tribunals have clarified that **pure reimbursements** (where no income element exists) **should not be subjected to TDS**, provided they are **billed separately** with **supporting documents**.

#### 🔹 **Key Case Law:**

**DCIT vs. DLF Commercial Projects Ltd. \[ITA No. 5147/Del/2011]**

> TDS was not applicable on reimbursements where:
>
> * Separate bills were raised,
> * Supporting invoices were provided,
> * There was **no profit element** in the reimbursed amount.

#### 🔹 **Other supporting case laws:**

* **CIT v. Industrial Engineering Projects Pvt. Ltd. \[1993] 202 ITR 1014 (Del)** – Reimbursement not subject to TDS.
* **ACIT v. Nihilent Technologies Pvt. Ltd. \[ITAT Pune]** – TDS not applicable where reimbursements are clearly separated and documented.

---

## ✅ What You Can Do Practically

### 1. **Separate Commission & Reimbursement Clearly**

Always issue:

* One invoice for **commission/fees** (subject to TDS under Section 194C/194J)
* A **separate debit note** for reimbursement with:

* Receipts attached
* Statement clearly stating “Pure Reimbursement – No Profit Element”

### 2. **Include Disclaimers in Your Debit Notes**

Add a line like:

> *“The amount mentioned herein is a pure reimbursement of out-of-pocket expenses incurred on behalf of the client. No profit margin or service component is included.”*

### 3. **Write to Your Client**

You can draft a formal letter quoting:

* **CBDT Circular 715 (Q.30)**
* **DCIT vs. DLF Commercial Projects Ltd.** case
* Statement from the **Chief Commissioner of IT, Rajkot** (as an informal reference)

You may request that **no TDS be deducted** on the reimbursed part **if supported by actual third-party receipts**.

---

### 4. **Alternative: Apply for Lower/Nil TDS Certificate**

If clients still insist on deducting TDS:

* Apply for a **Lower Deduction Certificate (Form 13)** under **Section 197** from your Assessing Officer.
* It will help reduce the tax burden and cash flow blockage.

---

## 🔚 Summary

| Item | TDS Applicable? | Reason |
| --------------------------------- | ----------------------------- | ------------------------------ |
| **Commission (Rs. 3,500)** | ✅ Yes | It's your income |
| **Customs, port, shipping, etc.** | ❌ No (if properly documented) | Pure reimbursement, not income |

---

Let me know if you'd like help drafting:

* A formal request letter to clients,
* A sample format for your **commission + reimbursement invoices**.

This situation is frustrating but solvable with the right documents and communication.

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