Section 194H TDS on Commission and Brokerage with Case Laws

Section 194H is for income tax deducted on any income by way of commission or brokerage, by any person responsible for paying to a resident. (Section 194H does not include insurance commission referred to in section 194D.)

Individuals/HUFs who were covered under section 44AB(a) and (b) in the preceding previous year i.e. whose gross turnover/receipts of the business/profession in the immediately preceding financial year exceeded business/profession in the immediately preceding financial year exceed Rs. 1 Crore of 50 Lacs, as the case may be, are also required to deduct tax at source

To fall in applicability, there must be Principal-Agent relation.

Point of Deduction and Rate:

It will be deducted at the time of credit of such income to the account of the payee or to any account or at the time of payment W.e. is earlier

TDS will be deducted at 5%. The rate of TDS will be 20% in all cases, if PAN is not furnished by the deductee.

Currently above rate becomes 3.75% for any transactions took place between 14th May 2020 to 31st March 2021.

Exceptions:

• Below are the circumstances in which no TDS will be deducted:
  • the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the FY does not exceed Rs. 15,000.
  • No tax shall be deducted on any commission or brokerage payable by BSNL or MTNL to their public call office franchises
  • The Bank guarantee commission
  • Insurance commission (Which is specifically covered in Sec 194D)

Time Limit on Depositing TDS:

TDS at a Lower Rate

• The deductee (the person whose tax is deducted) can make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.

Important Case Laws:

• When bank issues bank guarantee on behalf of assessee, there is no principal-agent relationship between bank and assesse. So, assessee is not required to deduct TDS. Kotak Securities Ltd. v. Dy. CIT [2012]
• Commission paid by Mother Dairy to concessionaires who sell milk of assessee from booths owned by assessee not liable to TDS under section 194H as principle-agent relationship is missing. CIT v. Mother Dairy India Ltd.
• Assessee-airlines issued tickets to its travel agents at a concessional price, transaction between assessee and travel agents was that of principal-to-principal and difference in price was discount and therefore, such transaction would not fall with ambit of section 194H. CIT v. Singapore Airlines Ltd.
• Where assessee, a manufacturer of bicycles, was giving trade incentive to dealers, if dealers were selling goods at price for which they were purchasing from company, such trade incentive would amount to commission for purpose of section 1 94H.(Tube Investments of India Ltd. v. ACIT[2009] 223 CTR 99 (MAD.)
• Turnover Commission payable by the RBI to the Agency Banks (Banks authorized for conducting Government business) for performing the general banking business of the Central and State Governments on behalf of RBI, no TDS would be deducted.
• Free issue of goods under trade scheme and free gift on sponsorship and promotions and early payment discount given to distributors do not treated as commission as here principal to agent relationship is missing. [Foster’s India (P) Ltd. v ITO (2009) 29 SOT 32 (Pune)(URO).]
• Discount granted to licensed stamp vendors on sale of stamp paper, by treasury cannot be termed as `commission or brokerage’ to attract TDS under section 194H. Kerela State Stamp Vendors Association v. Office of the Accountant General [2006]

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