Section 194H – TDS on Brokerage or Commission

Section 194H contains guidelines about tax deductions on the amount paid as brokerage or commission. Entities making a payment as commission or brokerage to a resident have to make a tax deduction at a 5% rate.

This amount has to exceed Rs. 15,000 in one financial year otherwise individual/HUF are not responsible to deduct TDS. However, individual and HUF who are liable to tax audit under Section 44AB must make tax deductions under Section 194H. TAN and PAN of both the involved parties are necessary for 194H TDS deduction under this section.

Commission or Brokerage with Reference to Section 194H

To have a clear idea about Section 194H, you need to know what qualifies as a commission or brokerage. Commissions or brokerage is any amount that one receives or will receive directly or indirectly for acting on behalf of another person. This would also include payments made for valuable assets.

Tax deduction for commission or brokerages would include these services:

• Any kind of services except professional services
• Services that you receive during transactions related to valuable assets, apart from securities
• Services that you obtain with regards to purchasing or selling of goods

However, certain commissions and brokerage charges do not qualify for tax deduction under Section 194H. These include:

• Commission you pay to loan or insurance underwriters
• The brokerage you pay for the transaction of securities listed on the stock exchange
• Any payment that RBI makes towards different banking companies
• Any amount you pay for LIC policies or any other investments towards any cooperative society
• The amount earned from interest from a savings account, recurring deposit, Kisan Vikas Patra, NSC.

When to Deduct Section 194H TDS?

You can deduct tax under Section 194H when the amount gets credited to the account of a payee or some other account  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.

Lowering TDS under Section 194H

If you are a dedicatee, you can apply to reduce the rate of tax deduction done on Section 194H. You need to make an application to an assessing officer to avail of tax deduction at a reduced rate. The assessing officer has to validate your PAN while you submit a certificate under Section 197.

In addition, the assessing officer will also need to verify that the threshold limit for the certificate does not exceed during any quarters. You will also need to quote the certificate accurately.

Once the assessing officer evaluates and validates all necessary information, they will approve the reduction of the TDS rate. You have to provide the following information while filing for a reduction in tax deduction rate:

• Name of the assesses
• Address details
• PAN
• The purpose for which you received the amount
• Income details of the past three years
• Estimated income of the current financial year
• Tax payment details of the last three years and others

Rate of Tax Deduction under Section 194H

If you are making a payment of more than Rs. 15,000 in one financial year towards commission or brokerage, you can make a tax deduction of 5%. There won’t be any additional deduction in the form of surcharge.

In case of the absence of a PAN card, the TDS can be a maximum of 20%.

What Is the Time Limit on Depositing TDS? 

Taxes must be deposited by the 7th of the next month from April to February. Tax credits for March must be submitted by April 30th. After deducting the TDS from the payment, the payer must deposit the withholding tax into the government account as soon as feasible. The payer just represents the government. This is not his earnings, and it must be remitted to the government on time. Taxes withheld on April 25 must be reported by May 7, and taxes withheld on March 15 must be submitted by April 30.

TDS Due Dates of FY 2022-23 for Return Filing

Quarter	Period	Last Date of Filing
1st Quarter	1st April to 30th June	31st July 2022
2nd Quarter	1st July to 30th September	31st October 2022
3rd Quarter	1st October to 31st December	31st Jan 2023
4th Quarter	1st January to 31st March	31st May 2023

Conclusion

This article provides comprehensive information about Section 194H of the Income Tax Act. Section 194H relates to income tax deducted from those obliged to pay the resident with commission or brokerage income. Individuals covered by Section 44AB and HUF must also deduct,

If the total income from individuals and HUF with business sales of over ₹1 crore or from occupations exceeds ₹50,00,000, This is affected from 2021.

Knowing the deadline for submitting TDS, it is also very important after deducting TDS from the payment amount, the payer must deposit the TDS in the government account as per due dates mention In the Act. The payer acts only on behalf of the government. This is not his/her income and must be paid to the government on time.

About the Author

Author is Ruchika Bhagat, FCA helping foreign companies in setting up and closure of business in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat & Co. Chartered Accountants, is a well-established Chartered Accountancy firm founded in the year 1997 with its head office at New Delhi.