TDS on incentives

[KRISHNAMURTHY S P]

Company having dealers all over india, supply goods to dealers under a contract of sale. If the dealer achieves the turnover target, company provide certain incentives like, salary reimbursment of some of the employees, advertisment cost etc. Is the company liable to deduct tax on these incentive given to dealers.

[Rama Krishana]

If it is in the nature of brokerage or commission, obviously yes, you need to deduct TDS on such payment. But, if it is in the nature of discount, no TDS is required to be deducted. In my view, where the dealers are acting as independent distributor / seller and the company is selling product to them, the nature of incentives, reimbursements of some expenses would be in the nature of Discount only.

AI Summary

TDS on incentives: characterize payments as brokerage or discount; brokerage triggers TDS while discount does not. Withholding tax liability on dealer incentives depends on their legal character: payments characterized as brokerage or commission are subject to TDS, whereas incentives or reimbursements that effectively function as trade discount and reduce the dealer's purchase consideration do not ordinarily attract withholding; characterization should follow substance over label, particularly where dealers act as independent distributors.