The provisions of section 194H of the Income Tax Act, 1961 governs the TDS deductible on commission or brokerage income.

The present article briefs the basic provisions of section 194H of the Income Tax Act; explains the meaning of commission / brokerage; provides TDS deduction rate and time of deduction of TDS and also provides the list of cases wherein TDS is not deductible under section 194H.

Basic provisions of section 194H

As per the provisions of section 194H of the Income Tax Act, 1961, any person making payment of any income in respect of commission / brokerage is required to deduct TDS.

In case of Individual / Hindu Undivided Family (HUF) provisions of section 194H applies only if the total sales / gross receipts or turnover exceeds the monetary limit specified under section 44AB (a) or (b).

Meaning of commission / brokerage – 

At the time of understanding the provisions of TDS on commission / brokerage, firstly, it is essential to understand what is commission / brokerage?

Explanation (i) to Section 194H of the Income Tax Act, 1961 contains the meaning of the term ‘Commission or Brokerage’. As per the said Explanation, Commission or Brokerage includes any payment received / receivable (directly or indirectly) by a person acting on behalf of another person for –

  • Services rendered (except the professional services); or
  • Any service in the course of buying / selling of goods; or
  • In relation to any transaction to any asset, thing or valuable article (except securities).

TDS deduction rate –

The person liable to deduct TDS under section 194H of the Income Tax Act is required to deduct TDS @ 5%. No additional surcharge, Education Cess or SHE Cess is to be added to the TDS rate of 5%.

However, in the absence of PAN, the Deductor would be liable to deduct TDS at the maximum marginal rate i.e. 20%.

Time of TDS deduction –

Section 194H of the Income Tax Act, 1961 requires the Deductor to deduct TDS within earlier of the following dates –

  • At the time of credit of commission or brokerage to the account of the payee; or
  • At the time of payment of commission or brokerage in cash or cheque or draft or any other mode.

Cases wherein TDS not to be deducted under section 194H

TDS is not liable to be deduction under Section 194H of the Income Tax Act in the following cases –

1. The aggregate amount of commission or brokerage credited / paid to the account of the payee doesn’t exceed INR 15,000.

2. The Commission or brokerage payable by the Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL) to their public call office franchisees.

3. The Bank guarantee commission.

4. The cash management service charges.

5. TDS on insurance commission is not deductible under section 194H, the same is specifically covered under section 194D.

6. The payee has applied for and obtained a certificate from the Assessing Officer under section 197 for NIL or lower deduction of TDS.

7. TDS on commission paid by the employer to its employee is deductible as per provisions of section 192 and not under section 194H.

Certain important points –

  • In case of levy of GST on the commission / brokerage, the Deductor would be required to deduct TDS on the basic value of the commission / brokerage paid and not on the GST component.
  • If the commission / brokerage exceeds the exemption limit of INR 15,000, the TDS is to be deducted on the whole amount paid / payable during that Financial Year and not only on the amount exceeding the exemption limit.
  • If the agent retains the commission amount while remitting the sale consideration, TDS on such amount of commission is to be deposited by the principal.

Frequently Asked Questions with reference to Section 194H of the Income Tax Act, 1961 –

1. What is section 194H?

Section 194h underlines the provisions regarding deduction of TDS on commission / brokerage.

2. What is limit of TDS deduction on commission?

Section 194H provides the exemption limit of INR 15,000 on TDS on commission i.e. TDS is deductible only if the aggregate amount of commission exceeds INR 15,000 during the Financial Year.

3. What happens if TDS is not deducted?

If TDS is not deducted, then as per provisions of section 201(1A), the Deductor is liable to pay interest @ 1% per month from the date on which TDS was to be deducted till the date of actual deduction of TDS.

Also Read-

Particulars
TCS – Tax Collection at Source – A Complete Guide
TDS Rate Chart for Financial Year 2019-2020
Section 192 – TDS on Salary
Section 192A – TDS on Premature withdrawal from EPF
Section 193: TDS on Interest on Securities
Section 194 – TDS on dividend
Section 194A: TDS on interest other than interest on securities
Section 194B and Section 194BB – TDS
Section 194C – TDS on Contractors
Section 194D – TDS on insurance commission
Section 194DA – TDS in respect of Life Insurance Policy
Section 194E – TDS on payment to Non-resident Sportsmen or Sports Association
TDS under Section 194EE and Section 194F
Section 194G TDS on Commission on Sale of Lottery Tickets
Section 194I of Income Tax Act, 1961 – TDS on Rent
Section 194IA TDS on transfer of immovable property
Section 194IB – TDS on Rent paid by Individual / HUF
Section 194LA: Payment of Compensation on acquisition of certain immovable property
TDS under Section 194LB, 194LBA, 194LBB and 194LBC
Section 194LC: TDS on income by way of interest from an Indian Company or a business trust
Section 194LD TDS on income by way of interest on certain bonds and Government Securities
Section 194J TDS on Fees for Professional or Technical Services
Section 194N – TDS on Cash Withdrawals
Section 194M: TDS on Payment of certain sum by certain Individual / HUF
Section 195 TDS on payment of any other sum to a non-resident

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