Section 194H of the Income Tax Act, 1961 mandates Tax Deduction at the Source (TDS) on commission or brokerage payments to a resident individual. Any person not being an individual or HUF paying any commission or brokerage is liable for TDS under section 194H since commission or brokerage serves as a source of income. However, this section also provides certain exceptions where TDS is not deducted on commission or brokerage.
What is Section 194H of Income Tax Act?
Section 194H of Income Tax Act deals with TDS deduction on the payment of commission or brokerage. It mandates tax deduction by the person (other than individual/HUF) responsible for paying commission or brokerage to resident persons at the rate of 5% when the amount exceeds Rs.15000 in a year.
TDS under section 194H of Income Tax Act shall also be deducted by all the individuals and HUFs (Hindu Undivided Family) who are required to get their accounts audited under section 44AB.
Individuals and HUFs with a turnover exceeding Rs. 1 crore and professional income exceeding Rs.50 lakhs also have to deduct TDS. However, it does not include insurance commission, as provided in section 194D.
What is the Meaning of Commission and Brokerage?
To understand section 194H of Income Tax Act, you have to understand the basics of commission and brokerage. Any payment that is received or receivable, directly or indirectly, by any person acting on behalf of another person is said to be a commission or brokerage. It includes –
- Services rendered except professional services
- Services in the course of buying or selling goods
- Any transaction done for valuable assets or articles.
What are the Exemptions on TDS Deduction on Commissions and Brokerages?
- Brokerage or commission is less than or equal to Rs.20,000 in a financial year.
- When an employer is paying a commission to the employee, TDS is deducted under Section 192 of the IT Act.
- Commission on insurance income and loan underwriting.
- Service Tax deduction is not included in the Section 194H
- Individuals with a NIL TDS certificate from an authorised body will get a TDS exemption for all services.
- Payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements.
- Turnover Commission payable by the RBI to the Agency Banks.
- Brokerage or commission for providing securities to the public.
- No TDS deduction on the interest accrued on NRE accounts.
- Interest on refunds are not subject to TDS under Section 194H.
- Any payment of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
- Interest earned on deposits in savings bank account, NSC, Indira Vikas Patra and Kisan Vikas Patra are not subject to TDS.
FAQs
What are the Inclusions of TDS on Commission or Brokerage?
Tax deduction at source on brokerage or commission includes various services. These are as follows:
- Any service rendered except professional services
- Any service rendered in the process of selling or buying goods
- Any service that is given during any transaction related to any asset or any valuable thing excluding securities.
When does TDS under Section 194H Need to be Deducted?
- TDS under Section 194H will be deducted at the time of credit of such income to the account of the payee or to any other account.
- Whether called suspense account or by any other name 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.
