TDS on Commission or Brokerage: Section 194H

Do you earn commission or brokerage income in India? Or are you the one paying it? Anyways, through this post, you’ll become aware of TDS on commission or Brokerage as defined under Section 194H of Income Tax Act India.

TDS or Tax deducted at Source

In India we have a very strict tax regime wherein many check and controls are established against all sources of income. Thus, to track and ensure all taxes are paid, government imposes tax at the source of any transaction, such tax is called as Tax deducted at Source (TDS). In legal terms, as per the Income Tax Act, every person responsible for making payments is required to deduct Tax at Source (TDS) at prescribed rates.

But, today we are discussing only one type of TDS i.e. tax levied on commission and brokerage under section 194H. Section 194H was introduced from 1st June 2001.

Before deep diving through tax rules, let’s first understand the income source.

What is Commission & Brokerage?

“Commission” is a form of remuneration either received directly or indirectly, for any services rendered or products sold on behalf of others. Commissions are a common way to motivate and reward salespeople as the same is an added benefit.

A “broker” is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. Any income earned by the broker through such a contract or business is called a “Brokerage Income”. 

TDS on commission & brokerage

Section 194H: Applicability

Now, we have to analyse as to whom Section 194H is applicable?

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Section 194 H is applicable on any income earned through way of commission or brokerage in India. Any person responsible for making payment in the form of commission/brokerage is responsible to deduct tax at source.

The payee can be a resident individual, firm or company etc.

The provisions of this section apply to an individual or HUF only if turnover/gross receipts exceed monetary limits specified under section 44AB.

So, an individual or HUF is not liable to deduct tax at source where:

  • Business Turnover < 1 cr
  • Professional Receipts < 50 lakhs (specified U/s 44 AB)

Note: This section excludes Insurance commission which is specifically covered under Section 194D.

When to deduct Tax at source?

Tax must be deducted at the time of credit or such income or payment of such income, whichever is earlier. 

TDS Rate on Brokerage and Commission:

TDS is chargeable under this section only if the income amount exceeds Rs.15000 per financial year. The tax rate applicable under the section for any such income is 5 % only.

Important Points to Consider:

  • In case the recipient of income doesn’t provide PAN then the tax would be deducted @20%.
  • There is no surcharge or education cess applicable for any such payments.
  • If a person has genuine reason to support his claim, then such a person can apply to the assessing officer under section 197 for lower or NIL rate tax deduction policy.

Due Date for Tax payment

Any such tax deducted under this section must be deposited with the government by 7th of the following month.

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TDS certificate:

TDS certificate “Form 16A” is released for total income and tax payment under the section 194H at the end of each quarter. The certificate forms a base for filing income tax return.

TDS U/S 194H: Penalties for Non-compliance

In case the TDS is not deducted and/or deposited under this section then: provisions of section 201 of the Income Tax Act would be applicable, which states:

Interest in case of non-deduction of TDS: In case where such TDS is not deducted, interest @1% would be levied for every month or part of the month from the date on which TDS was deductible till the date on which TDS actually deducted.

Interest in case of non-payment / late payment of TDS: In case where TDS is deducted but not paid to government then interest @1.5% would be levied for every month or part of the month from the date on which TDS was deducted till the date on which TDS was actually credited to the Government.

In case any of the above policy rates and procedure is not followed, the person would be liable to pay interest penalty over and above normal tax payment.

TDS on Commission & Brokerage: The Bottom Line

To conclude, every individual is responsible for deducting proper taxes, maintaining records and issuing TDS certificate as under Section 194H for every income payable as commission or brokerage.

Did we miss any important detail here? Do you have any other point for TDS on commission and brokerage, that you wish to share? Feel free to add and discuss in the comment section below.

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