Section 194H - TDS on Commission and Brokerage

Section 194H deals with TDS provisions on commission or brokerage payments. If the amount of commission or brokerage exceeds Rs. 20,000, the TDS rate applicable is 2%. 

This provision applies to payments made by any person, other than an individual or Hindu Undivided Family (HUF), to a resident individual or entity in exchange for commission or brokerage. In this article, we will discuss in detail about the TDS on commission and brokerage.

What is Section 194H?

• Section 194H requires the payer to deduct TDS at the rate of 2% if the amount paid exceeds Rs. 20,000 in a financial year.
• Individuals and HUFs whose turnover from business is above Rs.1 crore or gross receipts 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.

What is the Meaning of Commission and Brokerage?

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

TDS on commission 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

Commission is quite common across industries like real estate, financial services, sales where agents/intermediaries plays a key role in closing the deals or facilitating transactions.

Similarly, brokerage is received by a broker for completing deals between buyers and sellers in markets such as stocks, insurance, real estate etc. 

When does TDS under Section 194H Need to be Deducted?

TDS under Section 194H will be deducted at the time of payment or credit of such income to the account of the payee , whichever is earlier. 

What is the Rate of TDS?

• The rate of TDS is 2%. 
• No surcharge, education cess, or SHEC shall be added to the above rates.
• The rate of TDS will be 20% in all cases if the deductee does not quote PAN.

Under What Circumstances TDS u/s 194H is Not Deductible?

• Brokerage or commission is less than or equal to Rs.20,000 in a financial year.
• Any payment of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
• When an employer is paying a commission to the employee, TDS is deducted under Section 192 of the IT Act.
• Brokerage or commission related to transactions in securities.
• Brokerage or commission related to professional services.
• Commission on insurance income and loan underwriting.
• 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.
• Payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements.
• Turnover Commission payable by the RBI to the Agency Banks.
• No TDS deduction on the interest accrued on NRE accounts.
• Interest earned on deposits in savings bank account, NSC, Indira Vikas Patra and Kisan Vikas Patra are not subject to TDS.

In a significant development, the Supreme Court recently held that under Section 194-H of the Income Tax Act, 1961, cellular mobile service providers are not liable to deduct tax at source on income/profit component in payments received by their franchisees / distributors from third parties/customers.

What is the Time Limit for 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 (the 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.

• 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

Points to Remember about TDS on Commission and Brokerage

• If the commission or brokerage comes under the GST, TDS is deducted from its primary value and is exclusive of the GST component.
• TDS is deducted if the aggregate earnings are more than Rs.20,000.
• Even if the agent retains the commission amount while setting payment, the TDS will be deposited to the government.
• When a TDS deduction is made on behalf of or by the government, it is deposited on the same day.