Section 194H – TDS on Commission and Brokerage

The Income Tax Act, 1961 contains several provisions for tax deduction at source (TDS). As a taxpayer, you need to know the various instances where TDS is liable to be deducted. It can help you make more informed decisions. 

One of the many provisions of the Income Tax Act that deal with TDS is section 194H. Read on to learn all about this particular section, the circumstances under which TDS deductions need to be made, and the exemptions to section 194H. 

What is Section 194H?

Section 194H of the Income Tax Act of 1961 is a provision dealing with tax deduction at source (TDS) on commission and brokerage payments. 

According to section 194H, any person, other than an individual and Hindu Undivided Family (HUF), making commission or brokerage payments to a resident of India is required to deduct TDS at the time of making the payment. 

In the case of an individual or a Hindu Undivided Family (HUF), TDS under this section must be deducted only if their gross receipts, total sales or turnover exceed the limits prescribed under section 44AB of the Income Tax Act of 1961.  

Definition of Brokerage and Commission as per Section 194H

Section 194H defines commission and brokerage as payments that a person receives or is entitled to receive directly or indirectly for acting on behalf of another person. It includes the following:

• For payments received for rendering services other than professional services 
• For payments received for services rendered in the course of buying or selling of goods
• For payments received for any transaction relating to an asset, valuable thing or article, excluding securities

When Does TDS Under Section 194H Need to be Deducted?

The TDS on commission and brokerage under section 194H must be deducted at the time of credit of the payment to the resident service provider’s account or any other account, including suspense accounts. The payment can be made in cash, by cheque, by demand draft or any other electronic mode of transfer. 

What are the Exemptions for TDS Deduction Under Section 194H?

If the payments made to the resident individual are made for professional services, technical services, consultancy services or advisory services, they’re not deemed to be commission or brokerage. 

Also, payments that a public authority or a government department makes to entities or individuals in connection with a project tendered by it are not considered commissions or brokerage. 

Payments made to non-resident Indians or for services that are rendered outside India are also not subject to TDS deduction under section 194H. 

What is the Rate of TDS Deduction Under Section 194H?

The rate at which TDS needs to be deducted for commission and brokerage payments is 5%. However, this rate is applicable only if the deductee’s PAN details are available. If the deductee doesn’t furnish their PAN details, the rate at which TDS needs to be deducted would be 20%. 

What are the Circumstances Under Which TDS Under Section 194H is Not Deductible?

If the commission or brokerage payments are below ₹15,000 per financial year, you don’t have to deduct TDS under section 194H. Furthermore, TDS need not be deducted if the payments to the resident individual are not in the nature of a commission or brokerage. 

What is the Time Limit For Depositing TDS Collected Under Section 194H?

The TDS on commission and brokerage that you deduct every month must be deposited with the government on or before the 7th day of the subsequent month. For instance, if you deduct TDS on the 26th of November, you need to deposit the amount by the 7th of December. However, this time limit applies to all the months except the month of March. If you’re deducting TDS in the month of March, the same must be deposited on or before the 30th of March. 

Can TDS be Deducted at a Lower Rate?

TDS under section 194H can be deducted either at a lower rate or at the NIL rate if the deductee obtains a certificate by making an application to the assessing officer. If the deductee produces such a certificate, remember to validate their PAN and the certificate before deducting TDS at the lower rate. 

What are Some Important Points to Consider When Deducting TDS Under Section 194H?

If you’re paying commission or brokerage to a resident Indian, here are some important points you need to consider before deducting TDS under section 194H. 

• If the commission or brokerage payments qualify for GST, you need to deduct TDS on the value of the service (i.e. the amount excluding GST) and not on the final amount. 
• TDS must only be deducted if the total value of commission or brokerage payments exceeds the 194H limit of ₹15,000 in a financial year. 
• The deducted TDS must be deposited on or before the stipulated date to avoid penalty. 
• If you’re deducting TDS under section 194H, you must provide the deductee with a TDS certificate with all of the relevant details. 

Also Read More About How to File TDS Return?

Conclusion

With this, you must now be aware of section 194H of the Income Tax Act, 1961 and the various circumstances that warrant the deduction of TDS under the section. Remember, if you’re the deductor, you must file a quarterly TDS return (Form 26Q) specifying the details of TDS deducted and deposited during the previous quarter. On the other hand, if you’re the deductee, make sure to get the TDS certificate from the deductor. This certificate acts as proof of TDS deduction and can come in handy when filing your income tax returns. 

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