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Section 194H - TDS on Commission and Brokerage

Updated on: Jul 2nd, 2024

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2 min read

Section 194H of the Income Tax (IT) Act provides for Tax Deduction at the Source (TDS) on commission or brokerage to a resident individual. Any person not being an individual or HUF paying any commission or brokerage is liable for TDS under section 194H since commission or brokerage serves as a source of income. However, this section also provides certain exceptions where TDS is not deducted on commission or 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 a resident. From FY 2020-21, 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.

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.

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

Exemption on TDS Deduction on Commissions and Brokerages

  • Brokerage or commission is less than or equal to Rs.15,000 in a financial year.
  • The employer is paying a commission to the employee, which is covered under Section 192 of the IT Act.
  • Commission on insurance and loan underwriting.
  • Individuals with a NIL TDS certificate from an authorised body will get a TDS exemption for all services.
  • 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.
  • Brokerage or commission for providing securities to the public.
  • Any payment of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees..

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 Rate of TDS?

The rate of TDS is 5%. The rate was 3.75% for transactions from 14 May 2020 until 31 March 2021. No surcharge, education cess, or SHEC shall be added to the above rates. Hence, the tax will be deducted at source at the basic rate. 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?

  • 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 15,000
  • 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 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.15,000.
  • 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.

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Frequently Asked Questions

Whether TDS under Section 194H is applicable to tickets issued by airlines to travel agents at a concessional price?

As per the judgement in CIT v. Singapore Airlines Ltd., where the airlines issued tickets to their travel agents at a concessional price, it was held that the transaction between Airlines and travel agents was that of principal-to-principal, and the price difference was because of discount. Therefore, such a transaction would not fall within the ambit of section 194H.

Whether Section 194H is applicable to trade incentives to dealers?

In Tube Investments of India Ltd. v. ACIT[2009], the taxpayer was a manufacturer of bicycles and was giving trade incentives to dealers. The tribunal held that if dealers were selling goods at the price they were purchasing from the company, such trade incentives would amount to a commission for section 194H. 

Whether TDS under Section 194H is deductible on turnover commission payable by RBI to Agency Banks?

TDS under section 194H shall not be applicable on Turnover Commission payable by the RBI to the Agency Banks, i.e. Banks authorised for conducting Government business, for performing the Central and State Governments’ general banking business on behalf of RBI. 

When should you deduct TDS (point of deduction) under Section 194H?

TDS under Section 194H shall be deducted at the time of credit of such income to the payee’s account or any account, called by any other name, or at the time of payment by any mode, whichever is earlier.

What is the rate of TDS deduction under Section 194H?

The tax is deducted at the source at a rate of 5%. If the PAN details are not provided, then a higher rate of 20% is applicable.

What happens if TDS is deducted but not deposited?

From the day the tax was deductible until the date the tax was actually deducted, interest at the rate of 1.5% per month, or part of a month, is payable on the amount of TDS.

Can we deduct our expenses from commission income?

Yes, you can deduct all of your expenses from your commission income when you file your income tax return. 

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Quick Summary

Section 194H of the Income Tax Act requires TDS on commission or brokerage payments. Individuals and HUFs with certain turnover must also deduct TDS. Exceptions include specific circumstances where TDS is not required. The TDS rate is 5%, but was 3.75% previously. TDS needs to be deposited by specified deadlines. Section 197 allows deduction request for a lower rate. TDS is required on commissions exceeding Rs.15,000 and it should be paid to the government on the same day.

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