Section 194H
A summary on Section 194H
In this post, we will look at Section 194H – TDS on Commission and Brokerage. Here, we’ll go over each section in detail:
- What is Section 194H?
- What is Commission and Brokerage?
- Exemptions of TDS on Commission
- When does TDS Under Section 194H Need to be Deducted?
- Rate of TDS
- Cases in which TDS is Not Deducted
- Time of Deduction
- Provisions for Nil Tax or Lower TDS under Section 194H
- Things to Remember about TDS on Commission and Brokerage
- FAQs
What is Section 194H?
Section 194H of the Income Tax Act applies to TDS on commission or brokerage earned by a resident individual. The Act asks authorised entities, except individuals and HUFs, to deduct TDS at a rate of 5% when paying commission or brokerage if the total earnings exceed Rs. 15,000 per year.
From FY 2020-21, this applies to individuals & HUFs whose turnover from business is above Rs 1 crore or whose gross receipts from the profession are above Rs 50 lakhs are also required to deduct TDS.
What is Commission and Brokerage?
Any amount of cash received or receivable, directly or indirectly, by a person working on behalf of another person is considered a commission or brokerage fee.
TDS on commissions or brokerage includes:
- For services given (not professional services), or
- For any services in the course of purchasing or selling goods, or
- Related to any transaction involving any asset, valuable article, or thing, except securities.
Exemptions of TDS on Commission
There are a few exceptions to the types of commissions that do not qualify for a tax deduction at the source under this section. They are :
- Commissions paid to insurance or loan underwriters,
- Any brokerage paid for the public offering of securities,
- Commission for issuing securities to the public.
- Any type of brokerage paid on the transactions of securities listed on the stock exchange.
- Payments made by the RBI to banking companies
- Payment as an income tax refund.
- Payments to Financial Corporations under the Central Finance Bill
- Any payments for LIC insurance or other investments in cooperative groups,
- Paying direct taxes
- Income from interest from savings bank accounts, recurring deposits, Indra Vikas Patra, NSC, or Kisan Vikas Patra
- Interest from the NRE account
- Any payment in the form of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees
- Any income received from a public or private institution that is designated as a NIL TDS entity.
- Any income from interest on compensation for the Motor Vehicles Claims Tribunal.
When does TDS Under Section 194H need to be Deducted?
When income from a brokerage or commission is credited to a payee’s account, tax is deducted at the source under Section 194H of the Income Tax Act 1961.
This applies whether the income is recorded in suspense accounts or under a different name and whether the payment is paid in cash, by cheque, or by draft.
Rate of TDS
The TDS rate in 194H is 5%. However, if the payee fails to provide PAN, the TDS rate on brokerage and commission is 20%.
No additional tax or education cess is charged on the actual TDS rate. Entities can deduct TDS on commissions and brokerage at a rate set by the government in an annual budget.
In addition to knowing the current Section 194H TDS limit, it is important to always be aware of the due date of deduction.
Cases in which TDS is Not Deducted
Section 194H provides that the tax deduction at source is not available in certain situations. These are:
Suppose the total income from brokerage or commissions is Rs. 15,000 within the financial year. Under this section, no deductions will be made.
Section 197 allows the individual to apply for a NIL or reduced rate tax deduction to the assessing officer.
Time of Deduction
Companies can deduct TDS under Section 194 in the following cases:
- When commissions or brokerage fees are sent to the payee’s account.
- When a commission or brokerage payment is made to the payee in cash, demand draft, or cheque.
TDS should be deposited by the 7th of the following month. For example, if TDS is deducted on April 15th, it must be paid by May 7th.
Provisions for Nil Tax or Lower TDS under Section 194H
Under Section 197 of the Income Tax Act, entities liable to deduct tax at source (TDS) can apply for a lower or NIL TDS certificate and on receiving the same can update the certificate to the tax deducting entity.
The tax deductor will verify the certificate, and if found to be valid shall allow NIL or Lower TDS deduction on the payment to be made. The same shall also be reported in the TDS returns.
The payer has to be keep in mind the points when allowing a NIL or Lower deduction;
- TAN in the certificate
- Validity of the certificate
- Amount Threshold as mentioned in the certificate
- Rate of tax deduction
- Applicable Sections
- Certificate number
Things to Remember about TDS on Commission and Brokerage
Entities must keep the following information about Section 194H of the Income Tax Act:
- If the commission or brokerage falls under GST laws, TDS is deducted from the main value, excluding the GST component.
- You must pay tax at the source if your total earnings exceed Rs. 15000.
- Even if the agent can retain the commission amount after payment, the tax deducted at the source will be deposited with the government.
- When a deduction is made on behalf of or by the government, it is deposited on the same day.
This post about Section 194H – TDS on Commission and Brokerage has concluded. Please share your ideas and opinions in the comments box below.
FAQs
1. What is the TDS deduction rate under Section 194H?
Ans: Tax is deducted at the source at a rate of 5%. If the PAN information is not provided, a higher charge of 20% is applied.
2. Can we deduct expenses from our commission income?
Ans: You can deduct all of your expenses from your commission revenue on your income tax return.
3. Who is liable for tax deductions? At the source under Section 194H?
Ans: Individuals who make money from commissions or brokerages are liable to deduct tax at the source.
4. When is the Tax Deduction at Source (TDS) completed?
Ans: TDS is deducted when any commission is paid in cash, check, or draft, as applicable.
