The TDS deduction on the payment of commission or brokerage is covered by Section 194H. When the amount surpasses Rs.15,000 in a year, it requires that the person (other than an individual or HUF) in charge of paying commission or brokerage to residents deduct taxes at the rate of 5%.
All individuals and HUFs who need to have their accounts audited under section 44AB must also deduct TDS under section 194H.
TDS must also be deducted from the earnings of individuals and HUFs with a turnover of more than Rs.1 crore and professional income above Rs.50 lakh. As stated in section 194D, the insurance commission is not included.
What is Section 194H of Income Tax Act?
Section 194H of Income Tax Act deals with TDS deduction on the payment of commission or brokerage. It mandates tax deduction by the person (other than individual/HUF) responsible for paying commission or brokerage to resident persons at the rate of 5% when the amount exceeds Rs.15000 in a year.
TDS under section 194H of Income Tax Act shall also be deducted by all the individuals and HUFs (Hindu Undivided Family) who are required to get their accounts audited under section 44AB.
Individuals and HUFs with a turnover exceeding Rs. 1 crore and professional income exceeding Rs.50 lakhs also have to deduct TDS. However, it does not include insurance commission, as provided in section 194D.
What is the Meaning of Commission and Brokerage?
To understand section 194H of Income Tax Act, you have to understand the basics of commission and brokerage. Any payment that is received or receivable, directly or indirectly, by any person acting on behalf of another person is said to be a commission or brokerage. It includes –
- Services rendered except professional services
- Services in the course of buying or selling goods
- Any transaction done for valuable assets or articles.
What are the Exemptions of TDS on Commission or Brokerage?
- Commission paid to insurance or loan underwriters,
- Any brokerage paid for the public issue of securities,
- Any sort of brokerage paid on the transactions of securities that are listed in the stock exchange,
- Payments made by RBI to banking companies,
- Payment as an income tax refund,
- Payments towards Financial Corporations under the central finance bill,
- Any payments towards LIC policies or other investments in any cooperative societies,
- Payment of direct taxes,
- Income from interest from the savings bank account, recurring deposits, Indra Vikas Patra, NSC or Kisan Vikas Patra,
- Interest from NRE account,
- Any payment in respect of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees,
- Any income from a public or private institution that is notified as NIL TDS organization.
- Any income from interest for the compensation in respect to Motor Vehicles Claims Tribunal.
What are the Inclusions of TDS on Commission or Brokerage?
- Any service rendered except professional services
- Any service rendered in the process of selling or buying goods
- Any service that is given during any transaction related to any asset or any valuable thing excluding securities.
Provisions for Nil Tax or Lower TDS under Section 194H
As per Section 197 of ITA, entities can claim a lower rate or a NIL tax of TDS certificate from the Income Tax Department. However, one can avail such a certificate if the amount of TDS deducted is more than the total income tax liability in a given fiscal year.
One must note that to claim nil tax or lower TDS rate, entities need to file Form 13 and submit it to the Assessing Officer either manually or online. Once the Assessing Officer is satisfied with the form, the application is processed, and the required certificate is issued.
Nonetheless, one has to submit these documents along with Form 13 to avail the certificate –
- Assessment orders (copies) of the last 3 financial years.
- PAN card.
- Financial statement and audit report of the last 3 fiscal years.
- Income statement for the last 3 fiscal years and projection of earnings of the current fiscal year.
- Income tax returns (copies), acknowledgement, and enclosures of the last 3 fiscal years.
- TDS account number of the paying parties.
- E-TDS returns of the last 2 fiscal years.
FAQs
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.