Company ABC Ltd. Appoints its distributors and as a business promotion strategy it commits an ROI of 30 %, for the first year, to them on an investment of 2 Crores.
The company considers that the distributor will get a margin of 5% on completing a business cycle of procuring goods worth 2 crores and selling them to dealers/ retailers. During a year the distributor will complete 6 such business cycles and will achieve margin or ROI of 6 cycles multiplied by 5% Margin equalling to 30% committed ROI.
If a distributor completes 4 of such cycles it will receive a margin of 4 x 5% = 20% ROI and balance 10% of the ROI will be given by the company as per commitment and written agreement.
If a distributor completes 0 of such cycles it will receive a margin of 0 x 5% = 00% ROI and balance 30% of the ROI will be given by the company as per commitment and written agreement.
This balance of ROI given by the company to the distributor will be considered as an incentive/ scheme and TDS will be deduct under section 194 R and GST will not be applicable on it as incentive is exempt from GST.
Or it will be treated something else, if yes, what and how?
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