Section 194H of Income Tax Act; TDS on Commission & Brokerage

What is Section 194H- Section 194H is for income tax deducted on any income by way of commission or brokerage, by any person responsible for paying to a resident.
Individuals and Hindu Undivided Family who were covered under section 44AB are also required to deduct TDS. From FY 2020-21, individual and HUF whose turnover from business is above Rs 1 crore or gross recipts from profession are above Rs 50 lakh are also required to deduct TDS.
Section 194H does not include insurance commission referred to in section 194D.

When does TDS under Section 194H need to be deducted


TDS under Section 194H will be deducted at the time of credit of such income to the account of the payee or to any other account.


Whether called suspense account or by any other name at the time of payment, of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.

Section 194H is usually covered by the persons or assessees responsible for paying to a resident. It stipulates that individuals and Hindu Undivided Family who have been covered by section 44AB are also allowed to deduct TDS for income tax deducted from any income by commission or brokerage. However, the purview and scope of the said section and the provision contained therein are restricted as it does not include an insurance commission referred to in section 194D.

Rate of TDS

  • The commission or brokerage TDS rate is 10%.
  • There is no extra fee levied upon the person being charged.
  • If the payee did not provide PAN, then TDS will be deducted at a rate of 20%.
  • Assessee may apply to the Assessing officer for no TDS or TDS at a lower rate as set out in Section 197 of the Income Tax Act, 1961.

Is TDS deducted under Section 194H?

Deduction of TDS is not a general law in compliance with section 194H. However, the same is attracted at the time of credit of such income to the account of the payee or any other account. Suspense account or by any other name at the time of payment in cash/cheque/draft etc whichever is earlier.

Under section 194H of the 1961 Income Tax Act, the deductible shall be deducted from TDS within the following dates –

  • when the commission or brokerage is credited to the payee ‘s account;
  • During the payments in cash or cheque, drafts or any other form of commission or brokerage are being made.

Cases wherein TDS not to be deducted under section 194H

In the following cases, TDS shall not be liable to be deducted under Section 194H of the Income Tax Act –

  1. The cumulative amount of commission or brokerage credited to the payee’s account is no greater than ₹15,000.
  2. The brokerage is payable or the commission by the Mahanagar Telephone Nigam Limited (MTNL) or  Bharat Sanchar Nigam Limited (BSNL) to their public call office franchisees.
  3. Commission guaranteed by the bank. 
  4. Service charges for cash management
  5. TDS is not deductible under Section 194H on insurance commission. Section 194D explicitly encases the same.
  6. The payee has applied for and obtained a certificate for NIL or lower deduction of TDS from the Assessing Officer under section 197.
  7. TDS on the fee paid to its employee by the employer shall be deductible as specified in section 192 and not under section 194H.

    Points to consider 
  • The Deductor would have to deduct TDS on the basic value of the commission/mail paid and not on the GST part for the GST levy on the commission/brokerage.
  • If the brokerage or commission exceeds ₹15 000 exemption limit, the total amount payable during this fiscal year shall be deducted from the TDS. The government deducts this amount rather than just the amount exceeding the exemption limit,
  • If, while returning the sale consideration, a commission is retained by the agent, the TDS is to be deposited by the principal in respect of such commission.

What is the scope of commission or brokerage?

Commission or brokerage includes any payment received or receivable, directly or indirectly, or by a person acting on behalf of another person

TDS on commission or brokerage has the following ingredients:

  1. for services rendered (not being professional services), or
  2. for any services in the course of buying or selling of goods, or
  3. about any transaction relating to any asset, valuable article or thing, except securities.

Under what circumstances TDS u/s 194H is not deductible?

Under Section 194H there shall be no deduction if:

  1. The person must pay the total or combined amounts of this revenue in the financial year. It shall not exceed  ₹ 15,000.
  2. The Person or Assessee makes an application to the assessing officer under section 197 for deduction of tax at NIL rate or a lower rate.

Is there any time limit on depositing TDS?

There are two-time frames, one must generally lookout for.

  1. One must deposit the tax deducted from April to February, on or before the 7th of next month.
  2. On must deposit, the tax deducted in March on or before 30th April.

Therefore, for example, one must deposit the tax deducted on 25 April, on or before 7th May. One must deposit the tax deducted on 15 March, on or before 30 April.

On what occasions are the TDS rates low?

The assessee can make an application to the assessing officer under section 197. This is for deduction of tax at NIL rate or a lower rate.

  • Deductor measures: Validate the PAN from 197 certificates submitted by a deductee.
  • The certificate should be valid for the PAN, Section, Rate and relevant financial year. We need to mention these details in the statement filed.
  • One must verify that the threshold limit for the certificate has not been exceeded in previous quarters.
  • The declaration should include the appropriate certificate number. Example of Correct Certificate Number – 3XXXAH7X.

Conclusion

In case you need additional assistance, please do not hesitate to leave a comment below. We hope this information has been helpful; however, if you require additional assistance, please let us know.

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