Tds query

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This query is : Resolved

Rachit (Querist)

19 September 2013 A firm avails the services of a Clearing & Forwarding agent for exporting goods. The Bill raised by the C & F Agent includes FREIGHT CHARGES paid to the carrier alongwith his c & f agency charges.
It's known that C& F charges paid attract TDS u/s. 194C.

Qt. Whether TDS is required to be deducted on the amount of Freight paid to the carrier by the C & F agent on our behalf ???

Ganeshbabu K

Ganeshbabu K (Expert)

19 September 2013 No tds required if he claimed these re-imbursements expences ,,
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Amount paid should be on actuals and production of original bill paid by him and he should claim these bills in a seperate invoice

Rachit

Rachit (Querist)

19 September 2013 Thanks for the reply.
Could you pl elaborate the issue with due reference to sec. 172 of the I. Tax Act

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

28 July 2025 Certainly. Let’s break down your query and then elaborate with reference to **Section 172 of the Income Tax Act**.

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### 🔎 **Your Case Summary:**

* A **partnership firm** is availing services of a **Clearing & Forwarding (C\&F) agent** for export of goods.
* The **C\&F agent’s invoice includes:**

1. **Freight charges** paid by him to the shipping line or transporter (on your behalf), and
2. His own **C\&F service charges**.

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### 🔖 **TDS Applicability under Section 194C (Contract Payments):**

* **C\&F Charges (agency charges):** ✅ **TDS under Section 194C** is clearly applicable, since this is a contract for service.
* **Freight Charges Paid by C\&F Agent:**

* If these are **reimbursements** of amounts actually paid by the C\&F agent to the carrier on your behalf — and
* If they are supported by **original freight bills/invoices** issued in the name of your firm or clearly identified —
➤ then, **TDS is not applicable** on the freight portion.

However, if the C\&F agent **does not provide a break-up** and raises a **composite invoice**, then **TDS will apply on the full amount** (including freight), since it becomes a consolidated contractual payment.

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### 📘 **Now, What About Section 172?**

Section 172 deals with **Shipping Business of Non-Residents** (not domestic transactions). Here’s what it states:

> **Section 172** provides for the levy and recovery of tax in case of **foreign shipping companies** or **non-resident ship owners** carrying goods or passengers from Indian ports.

#### 🔹 When does Section 172 apply?

* If the freight is paid to a **non-resident shipping company**, **Section 172** overrides the normal TDS provisions (including Section 194C).
* In such cases, **TDS is not required** under 194C; instead, **tax is levied directly under Section 172**, typically **before the ship leaves the port**.

#### 🔹 When does it NOT apply?

* If the freight is paid to:

* A **resident** transporter or shipping company
* A C\&F agent who is a resident and who in turn pays freight to resident carriers
Then, **Section 172 is not applicable**, and **Section 194C** rules take over.

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### ✅ **Conclusion:**

| Component | TDS Applicability | Remarks |
| ---------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------------------------------------- |
| C\&F Charges | **Yes** (u/s 194C) | Standard contract payment |
| Freight (paid by C\&F agent) | ❌ **No**, if reimbursed **on actuals** with supporting bills | Bills should be separate and ideally in your name |
| Freight to non-resident shipping company | ❌ No TDS u/s 194C✅ Tax applicable u/s 172 | Section 172 is a **self-contained provision** for taxing non-resident shipping income |

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### 📌 Recommendation:

Ask your C\&F agent to:

* Issue **separate invoices** for:

* Freight (as reimbursement, with original bills attached), and
* His agency fees.
* If he issues a **combined invoice**, TDS should be deducted on the **entire amount**.

Let me know if you'd like a sample format or a case law reference on this.

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