This should come as a relief to the dealers of consumer goods across the country. Manufacturers offering discounts to their dealers need not cut TDS (tax deducted at source) on them. Instead, TDS would only apply on the commission paid by the company to dealers.

Income tax department sources said they would issue a clarification soon to clear the air on the issue. Due to the absence of this distinction, there has been an overlap about the treatment of commission and discounts by the field forces.

For example, if a TV manufacturer gave a discount, besides the commission to his dealer for surpassing sales targets, there was lack of clarity on whether such discounts would be treated as the dealers profit or as part of his commission.

There have been cases where discounts were treated as part of the commission and field forces were asked by companies to cut TDS. Incidentally, there have been such recent cases at the Income Tax Tribunal involving a foreign footwear manufacturer and a telecom company.

The issue was also highlighted at the recent annual conference of the Chief Commissioners and Director Generals of Income Tax. The issue is whether there should be TDS on discounts distributed to dealers by companies. So far, tax authorities had claimed that commissions were being overstated to cover discounts, and so they had been insisting on TDS compliance. This issue has been subject to litigation between the tax payer and the department. Any clarification on this would be a welcome move, says KPMG director Salil Gupta.

According to PricewaterhouseCoopers executive director Rahul Garg, While the law is very clear on the definition of what constitutes discount and commission, there have been cases where TDS was being demanded on discounts as well. If the department comes out with clear-cut guidelines on this, in line with judicial precedence, it would be welcome.