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Updated on: Apr 4th, 2023
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11 min read
Section 194H of the Income Tax (IT) Act provides for Tax Deduction at the Source (TDS) on commission or brokerage by a resident individual. An individual who pays 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.
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.
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,
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 PAN is NOT quoted by the deductee.
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.
As per 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.
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.
As per Circular: No. 6/2003, dated 3-9-2003, TDS under section 194H shall not be applicable on Turnover Commission payable by the RBI to the Agency Banks, i.e. Banks authorized for conducting Government business, for performing the Central and State Governments’ general banking business on behalf of RBI.
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.
You can get in touch with us at tds@cleartax.in or give call us on 080 67458727, for all TDS related queries.
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Section 194H of the Income Tax Act covers TDS on commission/brokerage, with exceptions. TDS is to be deducted at credit/payment of income. Common exemptions exist, and TDS rate is 5% except when PAN isn't quoted, then 20%. Certification can lower TDS rate. Questions: What exemptions apply to TDS under Section 194H? When is TDS deposit limit and method? When to apply for lower rate TDS?