TDS

Prashant (Querist) 30 May 2009 This query is : Resolved
We had launched the scheme with our franchisees that if franchisee achieves the target then he will be alloted a new Car.
Now 2 of our franchisees have achieved their targets and are eligible for the Car.
So what will be the accounting treatment. Is it to be called as commission,an incentive or discount or any thing else.

My next question is about the applicability of TDS. Whether TDS will be attracted and if yes under what head.
Further we have not yet given the cars but while finalizing our books we need to take provision on the same so if TDS is applicable do we need to pay immediately.
Similarly we will have to recover TDS from the party since he is paid in kind. So is it a correct to recover the same from him

Thanks in advance

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A V Vishal (Expert) 30 May 2009
Dear Prasanth,

In common accounting parlance, commission is paid on regular sales, discount is given to boost sales and incentives for acheiving the desired sales. Since you have announced the car for reaching target then it is an incentive.

However, Where incentives to promote sales are given to the distributors or commission agents in cash, they ordinarily require tax deduction at source as commission under Sec. 194H, where the winnings are in kind, payment of tax on equivalent value has to be ensured by the giver under Sec. 194B before parting with the winnings. There is no similar provision in Sec. 194H. But it stands to reason that the value of the car has to be included as commission and tax has to be deducted from the amount paid, if any, in cash.

This alone will be a reasonable interpretation, though there is no specific provision in this regard.

Prashant (Querist) 31 May 2009
Dear Mr A V Vishal

Thanks for ur prompt reply

But still my doubt is, then should we recover the amount of TDS from the party as he is not paid in cash
Thanks