Section 194H – TDS on Commission and Brokerage
A comprehensive guide to understanding TDS levied on commission and 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.
- Section 194H does not include insurance commission referred to in section 194H.
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.
TDS Registration & Online Returns
TAN registration is required for making tax deduction or tax collection at source, remittance of TDS payments and issuance of TDS certificates. A TDS return has to be filed quarterly. Different types of TDS deductions have to be filed using different TDS return forms.
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What do you mean by Commission and 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 commision or brokerage includes,
- for services rendered (not being professional services), or
- for any services in the course of buying or selling of goods, or
- in relation to any transaction relating to any asset, valuable article or thing, except securities
Exceptions to Commission/Brokerage
People are under the presumption that Presumptive Taxation is applicable to Income from commission but technically it is not correct.
What is the rate of TDS?
- The rate of TDS shall be 10%.
- No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
- The rate of TDS will be 20% in all cases, if PAN is NOT quoted by the deductee.
Under what circumstances TDS u/s 194H is not deductible?
- No deduction shall be made under this section in a case where the amount or the aggregate amounts of such income to be credited or paid during the financial year does not exceed INR 5,000
- The Person can make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.
What is the time limit on depositing TDS ?
- Tax Deducted during the month of April to February is to be deposited on or before the 7th of next month. Tax Deducted in the month of March is to be deposited on or before 30th April.
- For example, tax deducted on 25 April is to be deposited on or before 7th May and tax deducted on 15 march is to be deposited on or before 30 April.
TDS at a Lower Rate
The deductee (person whose tax is deducted) can make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.
- Actions to be taken by deductor:
- Validate the PAN of the deductee submitting 197 certificate.
- The Certificate should be valid for the PAN, Section, Rate and relevant financial year which has been mentioned in the statement filed.
- Verify that the threshold limit for the certificate has not been exceeded in previous quarters.
- Correct certificate number should be quoted in the statement. Example of Correct Certificate Number – 3XXXAH7X