Section 194H – TDS on Commission and Brokerage By Vikram Shah - September 10, 2019 Last Updated at: Sep 24, 2020 5220 Section 194H – TDS on Commission and Brokerage The Honorable Finance Minister mentioned in a press conference, the new TDS and TCS prices come into force from May 14, 2020 and will remain in effect until March 31, 2021, that is, until the end of the 2020-21 fiscal year, . The rate at which the tax has to be deducted is 5% unless the payee has obtained a lower withholding tax certificate from the department. A deduction of TDS is attracted in cases where any person is paying a resident, commission or brokerage. However, the provisions under Section 194H does not cover the commission payable in respect of insurance commission. The same is covered under section 194D of the Income Tax Act, 1961. But the purview of the said section extends to any individuals and HUF, liable to audit under section 44AB (a),(b). Here tax deduction on any type of payment including brokerage or commission. is attracted when due to turnover/receipts exceeding the specified limits i.e 1 crore/25 lakh. Section 194H is usually covered by the persons or assessees responsible for paying to a resident. It stipulates that individuals and Hindu Undivided Family who have been covered by section 44AB are also allowed to deduct TDS for income tax deducted from any income by commission or brokerage. However, the purview and scope of the said section and the provision contained therein are restricted as it does not include an insurance commission referred to in section 194D. Rate of TDS The commission or brokerage TDS rate is 10%. There is no extra fee levied upon the person being charged. If the payee did not provide PAN, then TDS will be deducted at a rate of 20%. Assessee may apply to the Assessing officer for no TDS or TDS at a lower rate as set out in Section 197 of the Income Tax Act, 1961. Is TDS deducted under Section 194H? Deduction of TDS is not a general law in compliance with section 194H. However, the same is attracted at the time of credit of such income to the account of the payee or any other account. Suspense account or by any other name at the time of payment in cash/cheque/draft etc whichever is earlier. File Your Tax Returns Under section 194H of the 1961 Income Tax Act, the deductible shall be deducted from TDS within the following dates – when the commission or brokerage is credited to the payee ‘s account; During the payments in cash or cheque, drafts or any other form of commission or brokerage are being made. Cases wherein TDS not to be deducted under section 194H In the following cases, TDS shall not be liable to be deducted under Section 194H of the Income Tax Act – 1. The cumulative amount of commission or brokerage credited to the payee’s account is no greater than Rs.15,000. 2. The brokerage payable or the commission by the Mahanagar Telephone Nigam Limited (MTNL) or Bharat Sanchar Nigam Limited (BSNL) to their public call office franchisees. 3. Commission guaranteed by the bank. 4. Service charges for cash management 5. TDS is not deductible under Section 194H on insurance commission. Section 194D explicitly encases the same. 6. The payee has applied for and obtained a certificate for NIL or lower deduction of TDS from the Assessing Officer under section 197. 7. TDS on the fee paid to its employee by the employer shall be deductible as specified in section 192 and not under section 194H. Certain important points – The Deductor would have to deduct TDS on the basic value of the commission/mail paid and not on the GST part for the GST levy on the commission/brokerage. If the brokerage or commission exceeds Rs.15 000 exemption limit, the total amount payable during this fiscal year shall be deducted from the TDS. The government deducts this amount rather than just the amount exceeding the exemption limit, If, while returning the sale consideration, a commission is retained by the agent, the TDS is to be deposited by the principal in respect of such commission. What is the scope of commission or brokerage? Commission or brokerage includes any payment received or receivable, directly or indirectly, or by a person acting on behalf of another person TDS on commission or brokerage has the following ingredients: for services rendered (not being professional services), or for any services in the course of buying or selling of goods, or about any transaction relating to any asset, valuable article or thing, except securities. Under what circumstances TDS u/s 194H is not deductible? Under Section 194H there shall be no deduction if: The person must pay the total or combined amounts of this revenue in the financial year. It shall not exceed INR 15,000. The Person or Assessee makes an application to the assessing officer under section 197 for deduction of tax at NIL rate or a lower rate. Is there any time limit on depositing TDS? There are two-time frames, one must generally lookout for. One must deposit the tax deducted from April to February, on or before the 7th of next month. On must deposit, the tax deducted in March on or before 30th April. Therefore, for example, one must deposit the tax deducted on 25 April, on or before 7th May. One must deposit the tax deducted on 15 March, on or before 30 April. On what occasions are the TDS rates low? The assessee can make an application to the assessing officer under section 197. This is for deduction of tax at NIL rate or a lower rate. Deductor measures: Validate the PAN from 197 certificates submitted by a deductee. The certificate should be valid for the PAN, Section, Rate and relevant financial year. We need to mention these details in the statement filed. One must verify that the threshold limit for the certificate has not been exceeded in previous quarters. The declaration should include the appropriate certificate number. Example of Correct Certificate Number – 3XXXAH7X.