Tds on penalty payable by buyer for late pick up of goods

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Vivek Rishi (Querist)
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29 July 2011 One of our buyers had given us a confirmed order. However, they could not pick up the goods as per schedule and advised us to not to raise the invoice for three months. We have levied a nominal penalty on them @ 1% of invoice value for this period. Now the buyers want to deduct TDS on the penalty treating this amount as interest. Pls suggest whether this is correct?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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29 July 2011 Penalty word sounds insulting the client.
Can't you straight away increase the price after discussing the situation with the customer?

Is it correct to charge penalty on taking late delivery ?
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From the supplier's point of view you are
correct in recovering the financial loss caused to you. This is being demanded by you to be compensated. It's a kind of interest.
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If you can charge interest for financial losses, he can deduct TDS upon them.
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If he will not deduct TDS he will again be charged penalty and that will be imposed
by the IT department for Non-deduction of TDS.

Message likes : 1 times

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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29 July 2011 Many times the circumstances require tax planning. If you are already required to pay taxes ( according to your income ); no need to argue with the buyer not to deduct tax.

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Otherwise; if circumstances permit; follow what has been suggested by my fellow :

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Can't you straight away increase the price after discussing the situation with the customer?

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Just tell him; we are not in a position to give DISCOUNTS which we offerred before. My fellow has already suggested in his reply. The very first line is the punch line of his reply.

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Confirmed order's entry is never found in the books of account. It may be easily cancelled and can be taken afresh.

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