Bank charges can be considered as Commission?
Here is the case:
"Suppose someone availed a Bank Guarantee from a foreign bank. Bank charges BG fees, now Indian company has to remmit the bank charges to foreign bank, however Tax has to be deducted (TDS) under section 195.
Now, as you know as per section 195 bank charges are not mentioned seperately and tax rate is not specified. We have to consider bank charges under other income and deduct tax at 40%."
Can we classify the bank charges as commission and deduct tax accordingly?
No Bank charges cannot be classified as commission for the purpose of deduction of TDS. If you read income tax act 1961, definition of commission does not include Bank charges.
Here is the definition of commisssion as contained in Income Tax Act:
Commission or brokerage has been defined to include followings:
- Any payment received or receivable for services rendered by a person on behalf of another person or
- Any payment received or receivable for services in the course of buying or selling of goods or
- Any payment received or receivable in relation to any transaction relating to any asset, valuable article or things not being securities.
Such payment can be received directly or indirectly by the person.
Bank charges are received in normal course of business and accordingly cannot be classified as commission paid.