CA Umesh Sharma

CA Umesh SharmaArjuna (Fictional Character): Maharashtra Government has changed the working system of farmers, Commission agents as well as traders. What are the consequences of this in relation to income tax?

Krishna (Fictional Character): Arjuna, India is agriculture oriented country. For getting fair market prices and customer to farmers for the agricultural produce produced by them the state government has formed Agriculture Produce Market Committee in various cities. As per the rules of this committee farmers have to sell their farm produce to the trader with the help of Commission agents. Now the Government has granted permission to the farmer for selling their goods directly to anyone and relieved them from the commission of  the commission agent. This has brought about a big change in the system and led the Commission Agents into trouble/ Confusion. Therefore traders are opposing these changes.

tds

Arjuna: Krishana, What are the major Changes made by the Government?

Krishna: Arjuna, Government has made many changes in the working style of traders trading in agricultural produce. Earlier, farmers used to sell the goods through the commission agents and the commission agents would make payment to the farmer after deducting the commission. For example if goods of Rs.100 purchased by Commission agent on behalf of the Trader at the rate of 1% commission, then farmers are paid Rs. 99 after deducting Rs. 1commission and the commission agent charges goods for Rs.100 to the trader.From now onwards, agents will take their Commission amount from traders and not from Farmers. In the above Example- Now the farmers will get Rs. 100 and the trader will charge Rs. 101 which includes the Commission of the Agent of Re. 1.So now Commission to the Agents will be paid by Traders and not Farmers.

Arjuna: Krishana, what will be the effect on the farmers due to these changes?

Krishna:Arjuna, There are no restrictions on the farmer to sell their goods through agents. Wherever they get proper prices / returns they can sell their goods. Also the burden of Commission is shifted from farmers to traders. Due to this farmers will get more returns now.

Arjuna: What will be effect of such changes on Commission agents?

Krishna: Now the Commission agents will get their revenue from traders instead of farmers. Previously, when Commission was paid by farmers the TDS provisions were not applicable to the Commission agents but now TDS provisions are applicable to the agents. For Eg.if the total commission is Rs. 50,000 then TDS will be deducted @5% i.e.Rs. 2,500 and the agent will get commission of Rs. 47,500. Thus agents have to compulsorily file Income tax return. If the annual income of the person is less than Rs. 250,000/- (Basic Exemption limit) then the TDS amount on that income will be refunded by the Income tax department after Submission of the Income Tax return.Due to this provision many agents will file Income tax returns and whose income was previously more than Rs. 250,000 and was not filling tax returns will be caught.

Arjuna: what will be the effect on the Traders due to these changes?

Krishna: Now the traders will have to pay the Commission to the agent as well as the traders have to deduct TDS on the payment made by them. From 1st June 2016 onwards if the Commission is more than Rs. 15,000 then TDS will be deducted @ 5%. Trader has to pay TDS amount to the Government till the 7th of the succeeding month in which TDS is deducted. Further traders are also required to file quarterly TDS returns. So now the traders are required to pay commission as well as to comply with the rules and provision of TDS which will increase their expenses. The Agents are required to compulsorily give their PAN (Permanent Account Number) otherwise 20% tax will be levied. Traders who are individual/HUF and to whom tax audit is applicable, needs to deduct TDS.

Arjuna: Krishna, What lesson should the taxpayer learn from these changes?

Krishna:Arjuna, due to changes made by the government, the ultimate burden of commission will be on the consumers. Now it is expected that farmers will get good returns for his produce. If he doesn’t get proper return then he can sell his goods at any other place. There is Exemption of service tax to Commission agent / trader but income tax provisions have to be followed by them. There are always two sides to a Coin. In the same way there are two sides of the decision made by Maharashtra Government. Farmers are free but the agents and traders have to follow Income Tax Provisions strictly. Now let us see how effectively the rules are followed.

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