1) What is the meaning of words ‘Commission or brokerage’ for the purpose of section 194H of Income Tax Act, 1961?
Commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person:
(a) for services rendered (not being professional services), or
(b) for any services in the course of buying or selling of goods, or
(c) in relation to any transaction relating to any asset, valuable article or thing, not being securities.
2) Who is responsible to deduct tax u/s 194H?
Any person, (other than individual or a Hindu undivided family) who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, deduct income-tax thereon.
However An individual or a HUF is liable to deduct TDS under section 194H, if total sales, gross receipts or turnover exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such commission is credited or paid.
3) When to Deduct TDS under Section 194H?
It will be deducted at the time of credit of such income to the account of the payee or to any account, whether called suspense account or by any other name or at the time of payment, of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.
4) Rate of TDS under Section 194H
The rate of TDS is 5%.(3.75% w.e.f. 14.05.2020 to 31.03.2021) No surcharge and Health & Education Cess @ 4% shall be added to the above rates. Hence, the tax will be deducted at source at the basic rate. The rate of TDS will be 20% in all cases if PAN is not quoted by the deductee.
5) 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.
- Any brokerage or commission amount paid by BSNL/MTNL to their public call office franchisees.
6) Additional Points
- Commission received by Travel Agents liable to TDS U/s 194H-
- Commission and supplementary commission received by the travel agents from Airlines are liable to tax deduction at source under section 194H.
- SIM Cards –
- Bharti Airtel Ltd. vs DCIT [2015] 372 ITR 33 (Karnatka HC): Discount given by a mobile cellular operator to its distributors in the course of selling of SIM cards and recharge coupons under pre-paid scheme of getting a connection are not liable to TDS under section 194H.
- Advertisement Commission paid by Doordarshan to its Agents-
- Advertisement commission paid by Doordarshan to its agents is subject to tax deduction at source under section 194H.
- Case Law:
- Director, Prasar Bharati vs. CIT [2018] 403 ITR 161 (SC): Section 194H would be applicable to payments made by assessee, a government organization running TV channel called ‘Doordarshan’, to advertising agencies to secure more business as these were in nature of ‘commission’ paid to agencies as defined in Explanation appended to section 194H.
- Discount given to Stamp Vendors –
- No TDS is applicable on discount given to Stamp Vendors for purchasing stamps in bulk quantity.
- Payment made by Television Channels/Newspapers to Advertising Agency –
- No TDS is attracted on payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements. It is trade discount but not commission.
- Bank Guarantee Commission
- CIT vs. Larsen & Toubro Ltd [2019] 260 Taxman 271 (Bom): Bank guarantee commission is not in nature of commission paid to an agent but it is in nature of bank charges for providing one of banking service. Thus, S. 194H not applicable.
- Target incentives to dealers for increasing sale of their products
- PCIT vs. Shalimar Chemical Works Ltd. [2018] 257 Taxman 590 (Calcutta): Where assessee paid target incentives to dealers for increasing sales of its products, since there was no relationship of principal and agent between assessee and distributors, assessee was not required to deduct tax at source under section 194H while making said payments
- Discount offered to distributors for promotion of sales cannot be treated as commission liable to TDS u/s.194H-Nokia India (P.) Ltd. vs DCIT (DelhiTrib.) [ITANo.5791/Del/2015]
Extract of Section 194H TDS on Commission & Brokerage
194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent :
Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees :
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed [one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section:
Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
Explanation.—For the purposes of this section,—
(i) “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
(ii) the expression “professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;
(iii) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ;
(iv) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(Republished with amendments)
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