Income tax on discount

[ranjit ronald]

Dt.3.10.2009 Sir, We have appointed A as our stockists. We have sold our products to B through our stockists A. Payment by cheque is received from B and credited to A's a/c (stockists). Invoice is raised and goods dispatched to B (consignee) on account of A stockists. In the sales ledger all the traansactions done through the account of A, the stockists. In the sales ledger there is no transactions of B the consignee. At the month end we are allowing Trade discount to A (stockist) on the basis on total offtake. The discount is credited to A's a/c (stockists) through credit note. In the sales tax monthly return the above transactions are recorded as sales to A (stockist) . Pl advice : 1. Whether the Discount paid to A attracts income tax. 2. B wants to avail VAT input tax credit against this transaction. Is it possible. If not please give remedial measures. RANJIT RONALD

[Rama Krishana]

There are two situations. If the sale and purchases are booked by A in that case, discount would be part of trading account. But, if sale is made by the company on behalf of A, A would be entitled to get the commission. The issue is dependent on correct determination of nature of the transaction of sale and purchase. If A is booking sale and purchase, Invoice to B should be generated by A to B. In that the issue of Input Tax Credit would not be a major issue. But, in case, only discount / commission income is booked by A and sale is directly made by you to B, You have to charge vat on full amount paid by B either to A or to you. Therefore, all is dependent on nature of transaction, how you book.

AI Summary

Trade discount VAT treatment: VAT must be charged on full customer payment unless intermediary invoices the sale. Tax consequences of trade discounts hinge on whether the stockist A is the principal or only an agent. If A books sales/purchases and invoices B, the discount is part of A's trading account and input tax credit concerns are minimal. If the company sells directly to B and A only receives commission/discount, the company must treat the full amount paid by B as its taxable sale for VAT and A's receipt is commission income. The correct treatment depends on invoicing and accounting records.