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TDS on Commission and Brokerage

Section 194H

Last Updated 30th Oct 2020

Section 194H underlines the provisions of tax deductions for income earned from commission and brokerage for all entities including individuals and HUF who are liable for tax audit under Sec 44 B.

Salient Features 194 H
TaxpayerAny entity paying commission or brokerage.
RecipientA resident individual
Payment coveredCommission or brokerage excluding insurance commission
Threshold limit₹ 15,000
TDS Rate
A) PAN furnished5%
B) PAN is not furnished20%
INCOME TAX CALCULATOR

What is Section 194H?

Section 194H of the Income Tax Act governs the provisions of tax deductions for income earned from commission and brokerage. According to it, an individual or the member of Hindu Undivided Family making payment for commission and brokerage to the residents is required to deduct TDS at the time of payment whether in cash or cheque. The section, however, excludes any TDS deduction for income earned from insurance sales. Further, the current TDS rate for deduction stands at 10%; however, if the payee has not submitted his PAN card, the TDS is deducted at 20%.

What do Commission and Brokerage Mean?

According to Sec 194H, the term 'Commission or Brokerage' includes any payment which has been received or is to be received, directly or indirectly by a person acting on behalf of another person for the following:

  • Any services rendered excluding the professional services.
  • Any service for buying/selling of goods.
  • Concerned with any transaction to any asset, thing or valuable article (except securities).

TDS on Commission and Brokerage

  • TDS on commission and brokerage is to be deducted by all entities including both Individuals and members of Hindu Undivided family.
  • An individual and member of Hindu Undivided family are liable to pay TDS only if they are getting their tax audit conducted under Section 44AB. According to Sec 44 B, if the turnover/receipts exceed ₹ 25 Lakh- 1 Crore (according to the Income Tax Slab), they are liable to get their tax audit.
  • Also as per Section 194H, the person deducting TDS has to deposit the TDS before the due date to the government along with the TAN No. of the person deducting the TDS and the PAN Card No. of the person whose TDS has been deducted.
  • For calculation of TDS on commission and brokerage, the person cannot deduct any additional surcharge or educational cess. TDS is deducted at rate applicable inclusive of any service charges if any.

When does TDS under Section 194H be deducted?

Section 194 H of the Income Tax Act requires the deductor to deduct TDS under the following circumstance, whichever is earlier.

  • At the time of credit of payment of commission/ brokerage to the account of the payee
  • At the time of payment of commission/ brokerage to the payee account or any other account or through cash, cheque or DD.

Nil Tax at Deducted Source / Lower TDS Rate

According to Section 197 of the Income Tax Act, the person can claim a certificate from Income Tax Department for nil or a lower rate of TDS deduction if the TDS deducted exceeds the overall Income Tax liability in the financial year. To claim nil tax or lower TDS rate at deducted source, a Form 13 is to be filed with the Assessing Officer(TDS) through online mode or manually. If AO gets satisfied, he would process the application and issue a certificate to the deductor. This certificate can be used by the deductor to justify the lower deduction of TDS.

Further, you need to submit the following documents along with the application form for Nil/Low TDS deduction.

  • Copies of Income Tax Returns along with enclosures and acknowledgement for previous 3 financial years
  • Copies of assessment orders for past 3 fiscal years
  • Copies of financial statement along with audit report if any for the last 3 financial years
  • Projected revenue for the current financial year
  • Income statement for the previous 3 fiscal years along with the projection of income for the current financial year
  • Copy of PAN card
  • Tax Deduction Account Number of all parties responsible for paying you
  • E-TDS return t for previous 2 financial years
  • Estimated income during the fiscal year
  • Any earlier TDS default

Exemptions Under Section 194H

TDS is not applicable under section 194H in the following circumstances:

  • The commission or brokerage paid to the payee does not exceed ₹ 15,000 in a financial year.
  • In case the commission/brokerage is paid by the BSN/MTNL to their public call franchise.
  • If the employer pays the commission to their employees, the applicable TDS is deducted as per provisions of Section 192.
  • No TDS is deducted if the person has already obtained Nil TDS/ Lower TDS rate certificate from the concerned authority.
  • The commission received from insurance income is also not liable for TDS deduction.
  • Further, for any service tax payment TDS is not applicable under Section 194H.

TDS Rate of Deduction

  • For the financial year 2020-2021, the TDS rate of deduction is 5%.
  • No additional surcharge or education cess is to be added to the above rates.
  • In case the PAN is not furnished, TDS gets deducted at 20%.

Important Points to Remember under Section 194H Income Tax Act

You must remember the following key points about Section 194H:

  • In case, GST is levied on commission/brokerage, and the TDS is deducted on the primary value of commission/brokerage exclusive of GST component.
  • TDS is levied on the entire amount if the income received from commission/brokerage exceeds the exemption limit of ₹ 15,000 .
  • If the agent retains the amount of commission while making settling the payment, TDS is still deposited to the government.
  • TDS on commission/brokerage is deposited on the same day if the deduction is on behalf of or by the Indian government.

What is the time limit on depositing TDS?

If the tax is deducted from April to February, the same is to be deposited by the deductor on or before the 7th of next month. For instance, if the tax is deducted on 25th April, then it is to be deposited on or before 7th May.

FAQs

What is the TDS limit for commission?

Under Section 194H, the threshold limit for TDS deduction for commission/brokerage is ₹ 15,000 .

Under which head commission income is taxable?

The Commission income falls under the residuary head of income, i.e. Income from Other Sources (IFOS). However, if a person is engaged in the business concerned with the commission business, then it would come under the 'Income from commission business'.

How is TDS calculated on commission?

TDS on commission is deducted at the specified rate exclusive of any additional surcharge or educational cess. The TDS rate for the financial year 2020-2021 stands at 5%, however in case any entity has not furnished PAN, TDS is deducted at the rate of 20% p.a.

What is Section 194a of the Income Tax Act?

Section 194A of Income-tax act underlines the provisions for TDS deductions on interest payable like interest on fixed deposit, interest on an unsecured loan.

What is TDS section code?

TDS rates for different incomes are specified in different section codes. For instance, section 194H of the Income Act, undelines the provisions for TDS deductions for income received from commission/ brokerage.

What is TDS exemption?

Any individual whose overall tax liability exceeds the limit of TDS deduction can obtain a certificate for TDS exemption. For incomes such as commission TDS exemption certificate can be obtained by filing Form 13 to the Assessing Officer (TDS).

What is the TDS rate on brokerage?

Any individual paying income for the brokerage is liable to deduct TDS at the rate of 5% p.a. excluding of any surcharge, educational cess or SHEC( Secondary and higher education cess)

What is the TDS rate for service charges?

Section 194J of the Income Tax Act deals with various charges and TDS is applicable at the rate of 10% for various professional and technical services.

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