Section 194H – TDS on Commission and Brokerage

Last Updated at: January 14, 2020
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Section 194H – TDS on Commission and Brokerage

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 lays down that for income tax deducted on any income by way of commission or brokerage, by Individuals and Hindu Undivided Family who were covered under section 44AB are also required to deduct TDS. 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.

Is TDS deducted under Section 194H?

Deduction of TDS under section 194H is not a general rule. 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

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:

  1. for services rendered (not being professional services), or
  2. for any services in the course of buying or selling of goods, or
  3. about any transaction relating to any asset, valuable article or thing, except securities

What are the different rate-slabs of TDS: 

There are two different rate slabs of TDS- one is 5% and the other is 20%

  • 5% rate of TDS is attracted when there is no surcharge, education cess or SHEC is added to the rates. Therefore, the assessment that takes place in this rate-slab is to be deducted at source at the basic rate.
  • 20% rate-slab of TDS is attracted in all cases if PAN is NOT quoted by the deductee.

Under what circumstances TDS u/s 194H is not deductible? 

Under Section 194H, no deduction shall be made if :

  1. The amount or the aggregate amounts of such income to be credited or paid during the financial year does not exceed INR 15,000
  2. 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.

  1. For the tax deducted from April to February, it is to be deposited on or before the 7th of next month.
  2. Tax Deducted in March is to be deposited on or before 30th April.

Therefore, for example, if tax is 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.

Are there any instances where rates of TDS attracted are lower?

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.

  • Actions to be taken by deductor: Validate the PAN of the deductee submitting 197 certificates.
  • 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

Section 194H – TDS on Commission and Brokerage

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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 lays down that for income tax deducted on any income by way of commission or brokerage, by Individuals and Hindu Undivided Family who were covered under section 44AB are also required to deduct TDS. 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.

Is TDS deducted under Section 194H?

Deduction of TDS under section 194H is not a general rule. 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

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:

  1. for services rendered (not being professional services), or
  2. for any services in the course of buying or selling of goods, or
  3. about any transaction relating to any asset, valuable article or thing, except securities

What are the different rate-slabs of TDS: 

There are two different rate slabs of TDS- one is 5% and the other is 20%

  • 5% rate of TDS is attracted when there is no surcharge, education cess or SHEC is added to the rates. Therefore, the assessment that takes place in this rate-slab is to be deducted at source at the basic rate.
  • 20% rate-slab of TDS is attracted in all cases if PAN is NOT quoted by the deductee.

Under what circumstances TDS u/s 194H is not deductible? 

Under Section 194H, no deduction shall be made if :

  1. The amount or the aggregate amounts of such income to be credited or paid during the financial year does not exceed INR 15,000
  2. 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.

  1. For the tax deducted from April to February, it is to be deposited on or before the 7th of next month.
  2. Tax Deducted in March is to be deposited on or before 30th April.

Therefore, for example, if tax is 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.

Are there any instances where rates of TDS attracted are lower?

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.

  • Actions to be taken by deductor: Validate the PAN of the deductee submitting 197 certificates.
  • 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

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.