Section 194H - TDS on Commission

What is Section 194H?

1. Section 194H focuses on income tax levied on any income by means of brokerage or commission, by any individual accountable for paying to a resident.
2. Persona and Hindu Undivided Family (HUF) who were covered under section 44AB are also mandated to subtract TDS.
3. Section 194H does not entail insurance commission denoted in section 194H.
4. When such income is deposited in the account of the payee or any other given account, TDS under Section 194H will be deducted.
5. Whether it is known by the name suspense account or by something else at the time of disbursement, or it can be paid as cash, cheque or DD.

What is Commission and Brokerage?

You must be familiar with the fundamentals of commission and brokerage in order to understand section 194H. A commission or brokerage is defined as any payment that is made directly or indirectly to an individual acting on behalf of another individual. Various services included in the tax deduction at source for brokerage or commission are as follows:

1. Services rendered excluding professional services
2. Any transaction involving high-value products or assets
3. Services provided during the purchase or sale of goods

Exemptions of TDS on Commission

There are a few commissions or brokerage types that are exempt from this section's tax deductions at the source. They are listed below:

1. Commissions given to underwriters of loans or insurance.
2. Any kind of brokerage fee paid on the exchange's listed securities' transactions.
3. Payment in the form of a tax refund.
4. Any brokerage fees payment for the public issue of securities.
5. RBI payments to banking institutions.

1. Central Finance Bill's payments to Financial Corporations.
2. Any contributions to LIC policies and any additional investments in cooperative societies.
3. Any income from interest used to pay the Motor Vehicles Claims Tribunal's compensation.
4. Income from savings account interest, Indra Vikas Patra, Kisan Vikas Patra, NRE account interest, recurring deposits, NSC.
5. Any commission or brokerage payments made to franchisees of public call centres by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited.

Cases in which TDS is Not Deducted

Under section 194H, there are a number of circumstances in which TDS is not deducted. They are listed below:

1. If the total amount of all brokerage or commission income received during the payment period is under Rs.15,000 during the financial year, there will be no deductions.
2. Under section 197, a person may request a deduction at a NIL rate or a lower rate of tax from the assessing officer.

Rate of TDS

1. The rate of TDS on commission or brokerage is ten percent, which includes five percent from the fiscal 2016-2017.
2. There is no additional charge or education cess imposed on payment to resident.
3. If PAN has not been delivered by the payee, then TDS to be deducted at the rate of 20 percent.
4. Assessee can apply to evaluating officer for no TDS or TDS at lesser rate as specified under Section 197 of Income Tax Act, 1961.

Time of Deduction

1. TDS has to be subtracted at the time of disbursement or credit to the account of such recipient whichever happens before.
2. If this sum is credited to suspense account or account in any name, it is regarded as credited to account of payee and TDS is required to be deducted at time of such credit.

TDS at a Lower Rate

The deductee may request a lower rate or a NIL rate of TDS from the assessing officer. The assessing officer is required to take a number of steps to do this.

1. Validate the deductee's PAN before submitting the 197 certificate.
2. The certificate must have a current rate, PAN, sections, financial year, and other information.
3. The certificate's stated threshold limit must not exceed in any quarter.
4. It is important to properly quote the certificate number.
5. The assessing officer can accept the deductee's application after validating each of these actions.

When submitting this application for a lower or NIL rate of tax deduction at source, certain information must be provided, including:

1. The assessee's name and address
2. PAN details
3. Information about income over the previous three years

1. Any taxes paid in the previous three years
2. The reason for which payment was made
3. Projected earnings for the current financial year
4. Tax paid for the current financial year

TDS not needed to be subtracted in the cases mentioned below

1. There is no need for the TDS to be deducted only when the whole returns from such investment is more than INR 5000 in the year (INR 15,000 from the fiscal 2016-2017.
2. TDS is not a prerequisite on brokerage or commission owed by BSNL or MTNL to their public call office franchisees.
3. If the commission is granted by the establishment to its worker, then that amount is accountable to TDS under section 192, TDS from the remuneration rather than under the said section.
4. TDS on Insurance Commission is not subtracted as per the points section 192, but under Section 194D.
5. TDS is not deductible on Service Tax Amount. If service tax is imposed, then the TDS need to be reduced only from the money owed as brokerage or commission rather than deductible on service tax amount.

Key Points about Section 194H

The Income Tax Act of India's Section 194H addresses the deduction of tax at source (TDS) from commission or brokerage payments. Here are the crucial considerations under Section 194H for payers who must pay commissions or brokerage fees to residents:

1. All people, businesses, organisations, and other entities that give commission or brokerage payments to a resident payee are subject to Section 194H.
2. Section 194H TDS provisions apply only if the commission or brokerage payment to the payee surpasses $15,000 in aggregate during the financial year. 
3. Payments made in the form of commission or brokerage are subject to TDS under Section 194H.

1. Section 194H TDS is 5% of the commission or brokerage amount. This rate may change according to the current tax laws.
2. The payer must provide the payee with a TDS certificate (Form 16A), which must include information about the TDS deducted. When the payee files an income tax return, they will need this certificate as proof of the TDS deduction.
3. The payee may submit Form 15G (for individuals) or Form 15H (for senior citizens) to the payer if they feel their total income is less than the taxable threshold and they do not have to pay taxes. The payer won't deduct TDS from commission or brokerage payments if the requirements are satisfied.
4. To avoid late payment fines or interest, it is important to follow the TDS deduction and deposit deadlines.
5. TDS should be deducted at the time of payment or at the time the commission or brokerage amount is credited to the payee's account, whichever comes first. TDS should be deposited with the government by the specified deadlines.

1. Each quarter, the payer must submit a TDS return (Form 26Q), detailing the TDS that was deducted and deposited during that quarter.
2. The Permanent Account Number (PAN) of the payee must be accurately obtained and quoted for TDS. Higher TDS deductions could occur if PAN is not quoted at all or is quoted incorrectly.