Buyers Credit Vs. Suppliers Credit

Difference Between Buyers Credit and Suppliers Credit

  • Theoretically speaking, as the name suggests, importer of goods applies for buyers credit and exporter of goods applies for suppliers credit.
  • For all practical purposes, importer applies for buyers credit as well as suppliers credit.
  • Suppliers credit can only be arranged against LC backed transaction whereas buyers credits can be arranged Sight LC, Usance LC, DA & DP excluding Advance Payment
  • Generally Buyers Credit quote is arranged for after opening of the LC whereas suppliers credit quote is tied up before opening of the LC. LC is then opened as per the terms of the funding bank in case of suppliers credit. However, when the LC is opened before tying up for the funds in a suppliers credit, it might need amendment as per the funding bank.
  • Withholding Tax may be applicable in certain cases in a buyers credit but it is not applicable in suppliers credit.
  • Letter of Undertaking(LOU) issuance charges are applicable in case of buyers credit whereas since suppliers credit is an LC based transaction, no Letter of Undertaking(LOU) charges are applicable.

3 Comments

  1. Dear Navdeep,

    as per the above mentioned statement, pls clarify the applicability of withholding tax on supplier’s credit interest as we have to pay interest to the overseas bank for the discounting period.
    Also as per Income tax act, taxation provisions shall be applicable on any interest payment to overseas supplier or overseas funding bank.

    Thanx & regards
    Vikas Yadav
    09811510920

  2. Dear Vikas,

    1. WHT applicable for funding from Foreign Banks
    2. WHT not applicable for funding from overseas branches of Indian Banks
    3. WHT applicable when the borrower of the funds is in India (in suppliers Credit, Borrower is supplier and not buyer)
    4. WHT applicable when the supplier of the funds extend credit to the buyer (In suppliers Credit, supplier borrows and becomes liable for interest payment and not buyer)

    Therefore, WHT is not applicable in Suppliers Credit and consequently in your case, you are not required to make the payment of WHT.

    Warm Regards,
    CA Navdeep Saraogi

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>