Custom House Agents Seek Clarity On Tds

Even after two years since the 1995-96 Union budget which introduced a 2 per cent tax deduction at source (TDS) on bills raised by custom house agents (CHAs), confusion reigns supreme in the minds of exporters and importers.

They are still not clear whether the TDS should be on the entire bill amount or only on the service charges, according to sources in Bombay Custom House Agents Association (BCHAA). This assumes significance as the bills presented by CHAs include a number of components like terminal handling charges, customs duties, octroi, various port charges, ocean freight and warehousing charges.

These charges would have been normally paid by exporters and importers to various authorities directly but are routed through custom house agents only as a matter of convenience, sources added.

 

A CHA's primary duty is to clear goods and process the documents for export and import and they receive a commission or service charge for their services. So, the custom house agents argue, TDS should be deducted only on these charges. Their billing for other charges constitutes reimbursements and are, therefore, exempt from TDS, they said.

At present, some exporters and importers deduct TDS on the entire bill amount while others deduct on only the service charges and commission, the association members said.

BCHAA president Sorab P Engineer has, in a recent communication to finance minister P Chidambaram, sought a clarification in this regard be issued to the effect that TDS should not be deducted on charges like customs duty, octroi, port dues, freight charges and insurance. Such a clarification can be issued by the Central Board of Direct Taxes (CBDT.

The genesis of the confusion dates back to the Finance Act, 1995, which amended Section 194C of the Income-Tax Act of 1961 with effect from July 1, 1995. As per the amendment, any person responsible for paying any some of money to any resident for carrying out any work in pursuance of the contract between two persons is required at the time of credit of such sum or at the time of payment thereof whichever is earlier to deduct a sum equal to 2 per cent of such sum as income tax on income comprised therein. This meant that the provision was now applicable to a number of agencies including CHAs and steamer agents.

Subsequently, CBDT issued a circular on August 8, 1995, stating that TDS was applicable on reimbursements as well. The letter written by Engineer draws attention to this point which said "attention is also particularly invited to the reply to Question No 30 of the circular in which it has been stated that reimbursements cannot be deducted out of the bill amount. It is hereby once again submitted that the clarification in this circular would cause undue hardship to our entire trade and consequently to all importers exporters and therefore further clarification is sought from the Board particularly, in the context of nature of services rendered by our members."

The letter also pointed out there was no confusion prior to the issuance of this circular as it was clear that payments made by CHAs towards customs duty, port charges and other charges due on import and export consignments are to be excluded for the purpose of TDS under Section 194C.

The letter concludes saying that the clarification sought by them would not negate the amendment to 194C.