TDS on Bank Commission

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 February 2010 whether provisions u/s. 194H TDS on commission are applicable in respect of bank commission in respect of LC, Buyers credit etc?

Aditya Maheshwari

Aditya Maheshwari (Expert)
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27 February 2010 No

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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27 February 2010 no

Querist : Anonymous

Querist : Anonymous (Querist)

27 February 2010 Thanx...
can u plz give me any case ref. / notification.. b'coz IT Act itsself doesnt make it clear in this regard

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Sure! Here’s the clarity on **TDS on Bank Commission (like LC, Buyers Credit etc.)**:

### Key points:

* **Section 194H** applies to **commission or brokerage** on transactions of business or profession.
* However, **bank charges or commission on LC (Letter of Credit), Buyers Credit, etc. are treated as interest or service charges related to banking services, NOT as commission or brokerage**.
* Hence, **Section 194H does NOT apply to bank commission/charges related to banking facilities**.

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### Legal / Authority Reference:

1. **CBDT Circulars / Clarifications**
There is no explicit case law on LC charges, but it is accepted practice and clarified by tax professionals that **bank charges and commissions on LC/Buyers Credit are not subject to TDS under Section 194H**.

2. **TDS on Bank Charges - under which Section?**
Sometimes, TDS can be applicable under **Section 194A** (Interest other than interest on securities) if the payment is interest. But commission/charges on LC/Buyers credit are usually part of the banking service fees, so not interest or commission on sales.

3. **Income Tax Act does not define bank LC charges as commission/ brokerage**.

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### Summary:

* **No TDS deduction under Section 194H on bank commission on LC/Buyers credit.**
* If bank pays commission to agents, TDS may apply on that commission.
* If interest is paid on Buyers credit, TDS under Section 194A may apply on interest portion.

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