TDS on recharge voucher
This query is : Resolved
28 December 2010
Looking to the following decision of Kerla High court, Whether the Distributor who carried on business (as mention in under mention case ) through Retailer required to deduct tax at source of retailer? if yes then on what amount?
Vodafone Essar Cellular Vs ACIT (Kerla High Court)
The Assessee, a mobile cellular operator, carried on business through distributors, and offered the “post paid scheme” and the “pre-paid scheme” to its customers. The assessee paid charges to the distributors for services rendered. While the charges paid in respect of the “post paid services” was treated as “commission” and liable to TDS u/s 194H, payments made for services rendered under the “prepaid scheme” were treated as a sale of Sim Card at a discounted value and not as “commission”. The AO, CIT (A) & Tribunal treated the assessee as being in default u/s 201 on the ground that the so-called “discount” was “commission” u/s 194H. On appeal by the assessee, HELD dismissing the appeal:
(i) The argument that there is a “sale” of a Sim Card is not acceptable because a Sim Card has no value or use for the subscriber other than to get connection to the mobile network. The supply of the Sim Card is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Consequently, the charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is for rendering services to ultimate subscribers. The distributor is the middleman arranging customers or subscribers for the assessee after ensuring proper identification and documentation. Besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. The argument that the relationship between the assessee and the distributors is principal to principal basis is not acceptable. The distributor is an agent and canvasses business for the assessee. The terminology used by the assessee for payment to the distributors is immaterial. In substance the discount given at the time of sale of Sim Cards or Recharge coupons by the assessee to the distributors is a payment for services rendered to the assessee and falls within s. 194H.
(ii) The contention that discount is not paid by the assessee to the distributor but is reduced from the price and so deduction u/s 194H is not possible is not acceptable because the assessee should have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors
Vodafone Essar Cellular Vs ACIT (Kerla High Court)
The Assessee, a mobile cellular operator, carried on business through distributors, and offered the “post paid scheme” and the “pre-paid scheme” to its customers. The assessee paid charges to the distributors for services rendered. While the charges paid in respect of the “post paid services” was treated as “commission” and liable to TDS u/s 194H, payments made for services rendered under the “prepaid scheme” were treated as a sale of Sim Card at a discounted value and not as “commission”. The AO, CIT (A) & Tribunal treated the assessee as being in default u/s 201 on the ground that the so-called “discount” was “commission” u/s 194H. On appeal by the assessee, HELD dismissing the appeal:
(i) The argument that there is a “sale” of a Sim Card is not acceptable because a Sim Card has no value or use for the subscriber other than to get connection to the mobile network. The supply of the Sim Card is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Consequently, the charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is for rendering services to ultimate subscribers. The distributor is the middleman arranging customers or subscribers for the assessee after ensuring proper identification and documentation. Besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. The argument that the relationship between the assessee and the distributors is principal to principal basis is not acceptable. The distributor is an agent and canvasses business for the assessee. The terminology used by the assessee for payment to the distributors is immaterial. In substance the discount given at the time of sale of Sim Cards or Recharge coupons by the assessee to the distributors is a payment for services rendered to the assessee and falls within s. 194H.
(ii) The contention that discount is not paid by the assessee to the distributor but is reduced from the price and so deduction u/s 194H is not possible is not acceptable because the assessee should have given discount net of the tax amount or given full discount and recovered tax amount thereon from the distributors
28 December 2010
Vodafone's Rs 100 Recharge Coupon Received by the Distributor for Rs 95/
(after adjusting the 194H commission)
Distributor sales it to Retailer for Rs 96.50
Above transaction is on Principal to Principal basis. No TDS is required to be deducted by the Distributor.
(after adjusting the 194H commission)
Distributor sales it to Retailer for Rs 96.50
Above transaction is on Principal to Principal basis. No TDS is required to be deducted by the Distributor.
29 December 2010
Sale of recharge voucher / E-topup of 100/= by RETAILER purchase from distributor at 96.50 what will be consider turn over in case of RETAILER 100/= or Rs.3.50 commission.
If100 is to be consider as turnover Gross margin would be3.50 and net profit will be less. whether tax audit is required as profit is less then 8%
If100 is to be consider as turnover Gross margin would be3.50 and net profit will be less. whether tax audit is required as profit is less then 8%
29 December 2010
This query is open
30 December 2010
Yes.
27 July 2025
Great question! Here’s a clear explanation about **TDS on recharge vouchers** and how the Kerala High Court ruling affects the TDS deduction responsibility of distributors:
---
### Context:
* The issue is about whether the **discount given on prepaid SIM cards and recharge vouchers** to distributors is a **commission liable to TDS under Section 194H**.
* Vodafone Essar Cellular vs ACIT (Kerala High Court) clarified this.
---
### Key points from the Kerala High Court ruling:
1. **Nature of Payment:**
* The so-called "discount" given to distributors on prepaid SIM cards or recharge vouchers is not a mere sale discount.
* It is actually a **payment for services rendered** by distributors (like canvassing customers, documentation, enrolling subscribers).
* So, this "discount" is **commission or brokerage** in substance, even if called differently.
2. **TDS Applicability:**
* This payment qualifies as commission under **Section 194H**.
* Hence, **distributors must deduct TDS under Section 194H on these payments** made to retailers or sub-agents.
3. **Amount on Which TDS is Deducted:**
* TDS should be deducted on the **gross amount of the commission or discount given to the retailer**.
* The fact that the amount is given as a price reduction (discount) and not as a direct payment does **not exempt it from TDS**.
4. **Relationship:**
* The relationship between distributor and retailer is of **principal-agent**.
* The distributor acts as an agent rendering services to the telecom company through retailers.
---
### **Summary:**
| Question | Answer |
| -------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |
| Is TDS deductible on recharge voucher discounts paid to retailers? | Yes, it is considered commission and subject to TDS under Section 194H. |
| On what amount is TDS deducted? | On the gross amount of the commission/discount paid (i.e., the value of the discount itself). |
| Who should deduct TDS? | The distributor paying the commission/discount to the retailer must deduct TDS. |
| What if discount is given as price reduction and not direct payment? | Even then, TDS deduction is mandatory; substance prevails over form. |
---
### Practical takeaway:
If you are a distributor working with retailers for recharge vouchers or prepaid SIMs, **you are required to deduct TDS under Section 194H** on the commission or discount amount paid to your retailers, regardless of whether it is shown as a discount or direct payment.
---
If you want, I can help you with the **TDS deduction process, relevant forms, and entries** related to this!
---
### Context:
* The issue is about whether the **discount given on prepaid SIM cards and recharge vouchers** to distributors is a **commission liable to TDS under Section 194H**.
* Vodafone Essar Cellular vs ACIT (Kerala High Court) clarified this.
---
### Key points from the Kerala High Court ruling:
1. **Nature of Payment:**
* The so-called "discount" given to distributors on prepaid SIM cards or recharge vouchers is not a mere sale discount.
* It is actually a **payment for services rendered** by distributors (like canvassing customers, documentation, enrolling subscribers).
* So, this "discount" is **commission or brokerage** in substance, even if called differently.
2. **TDS Applicability:**
* This payment qualifies as commission under **Section 194H**.
* Hence, **distributors must deduct TDS under Section 194H on these payments** made to retailers or sub-agents.
3. **Amount on Which TDS is Deducted:**
* TDS should be deducted on the **gross amount of the commission or discount given to the retailer**.
* The fact that the amount is given as a price reduction (discount) and not as a direct payment does **not exempt it from TDS**.
4. **Relationship:**
* The relationship between distributor and retailer is of **principal-agent**.
* The distributor acts as an agent rendering services to the telecom company through retailers.
---
### **Summary:**
| Question | Answer |
| -------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |
| Is TDS deductible on recharge voucher discounts paid to retailers? | Yes, it is considered commission and subject to TDS under Section 194H. |
| On what amount is TDS deducted? | On the gross amount of the commission/discount paid (i.e., the value of the discount itself). |
| Who should deduct TDS? | The distributor paying the commission/discount to the retailer must deduct TDS. |
| What if discount is given as price reduction and not direct payment? | Even then, TDS deduction is mandatory; substance prevails over form. |
---
### Practical takeaway:
If you are a distributor working with retailers for recharge vouchers or prepaid SIMs, **you are required to deduct TDS under Section 194H** on the commission or discount amount paid to your retailers, regardless of whether it is shown as a discount or direct payment.
---
If you want, I can help you with the **TDS deduction process, relevant forms, and entries** related to this!
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