TDS ON CREDIT CARD COMMISSION PAID

But this is not the Government  business of the banks . when you purchase some thing on your credit card ,the seller do not get the whole amount credited ,some amount like 1.75% is deducted out of the payment to be credited to vendor's account. My question is for these charges which are being deducted in this way.

According to me, you are not liable to deduct TDS u/s.194H. The reason is you are not making any payment to banker towards commission or Brokerage. In fact, bank is giving credit of the proceeds of the sales effected through credit cards in your bank account after deducting their settlement charges..

My view is that Bank is acting as an agent for you. Against there services, they are charging commission. Bank is not raising any bill nor you are making any payment to bank. They deducts the amount from the proceeds. This transaction seems to be a normal bank transaction and is just like Bank Charges. So i think NO TDS is applicable.

My view is that Bank is acting as an agent for you. Against there services, they are charging commission. Bank is not raising any bill nor you are making any payment to bank. They deducts the amount from the proceeds. This transaction seems to be a normal bank transaction and is just like Bank Charges. So i think above is NOT subject to  TDS

No TDS shall be payable on such amount. What i feel is that though it is termed as credit card commission but in the general purview, it is more in the nature of bank charges deducted by the bank for providing you the services. They keep their profit share also from every transaction else they just provide a medium of transaction without charging for it.

This is what I read in a Tax Talk Column in Hindu.

Please clarify the applicability of the provisions relating to deduction of tax at source for the following payments:

Certification charges paid to nationalised banks at the time of export

Commission paid to credit card companies e.g. Citibank, on sales effected through credit cards

Hire charges (monthly rental) paid for use of vehicles particularly in the light of the amendment to section 194-I. C. P. Ethirajan

The payment in the nature of certification charges to nationalised banks will not come within the purview of the TDS requirement, there being no provision to require the deduction of tax at source.

Commission paid to credit card companies will not fall within the purview of the requirement to deduct tax at source. Section 194H deals with tax deducted at source on commission and brokerage, and the Explanation to the Section defines the term to include any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. The definition makes it clear that only when one person acts on behalf of another, the requirement to deduct tax at source under Section 194H will arise. Where a commission is paid to credit card companies there would be no case where one person would be acting on behalf of another since the sale is concluded by the vendor on his own behalf and not on behalf of the credit card companies and, therefore, the same would not be covered by Section 194H. It may be noted that though the definition is inclusive in nature the scope of the definition cannot be extended to such an extent to cover what is otherwise intended.

In case of hire charges paid, the transaction will have to be looked into to see whether the same is in the nature of a hire purchase or lease. If the transaction were in the nature of the former, there would be a requirement to deduct tax at source only on the interest under Section 194A. This Section, however, excludes the requirement to deduct tax at source if payment is made to a banking company or a co-operative society engaged in the business of banking and, therefore, where the hire is from a bank etc., as mentioned above, there would be no requirement to deduct tax at source on the interest. If the transaction were in the nature of lease there would be a requirement to deduct tax at source under Section 194-I in respect of the lease rentals paid or payable on or after July 13, 2006. It may be noted that Section 194-I was amended with effect from this date to cover within the ambit of the Section rent paid on plant and machinery as well and a car or any other vehicle would be classified as plant and machinery for the purposes of the Act.

It seems that whatever banks charge, they call commission. Basically they are all bank charges no matter what you term them. After all a wolf is a wolf even in sheeps clothing. Finally we have to only see whether bank transaction charges come under any purview of TDS. Yes, the author rightfully says leasing of plant and machinery from a Bank is covered if it is not a loan. That is if a bank attaches its hypothecated machines and gives them on hire to someone else to run to recover the dues of its defaulting borrower, you would have to deduct TDS on the payments. I am not an expert in these matters.It is just as I get obsessed with these matters as they become big problems if wrongly handled.

The charges of the bank for discounting your invoice made on card holder and paying you nett amount after deducting up front lumpsum fees does fall under definition no. 28A of section 2 of Income tax Act 1961 which reads

 "interest"  means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised ;]

Therefore any TDS for this kind of transaction would be logically u/s 194A and not 194H. In case section 194A is not applicable for interest paid to or debited by a Bank as per definition of a Banking Company under Banking regulations act 1949, there may be no liability for TDS. Only if you pay the money or your money is deducted by a NBFC then there is TDS.