Section 194H of Income Tax Act: TDS on Commission & Brokerage

Section 194H of Income Tax Act requires Tax Deducted at Source (TDS) on commission or brokerage paid to Indian residents. This applies when the payment surpasses a certain limit. This ensures tax collection before the payment is made, with specific exceptions. This section is relevant for individuals and businesses involved in transactions like selling or buying goods, providing non-professional services, or dealing with valuable assets. This article aims to provide comprehensive information about Section 194H of Income Tax Act.

Section 194H of Income Tax Act mandates TDS deduction on any payments made in the form of commission or brokerage. Under this section, the person, other than an individual or Hindu Undivided Family (HUF), responsible for paying commission must deduct tax at 5% when the amount exceeds ₹15,000 in a financial year.

Individuals and Hindu Undivided Families (HUFs) required to undergo a tax audit under Section 44AB of the Income Tax Act (due to a business turnover exceeding Rs. 1 crore or professional income exceeding Rs. 50 lakhs) must also deduct TDS on commission and brokerage under Section 194H of Income Tax Act, even if the payment amount might normally not require TDS deduction under Section 194H of Income Tax Act. However, this obligation does not extend to insurance commissions, which are covered under section 194D.

Inclusions of TDS on Commission or Brokerage under Section 194H of Income Tax Act-

Tax Deducted at Source- TDS on commission and brokerage under Section 194H of Income Tax Act covers variety of services including-

• Any service provided except professional services
• Any service provided in the process of selling or buying goods
• Any service that is given in the course of any transaction related to any asset or any other valuable thing except for securities.

Exemptions of TDS on Commission or Brokerage under Section 194H of Income Tax Act-

A few types of commissions or brokerage are exempted from TDS on Commission or Brokerage under Section 194H of Income Tax Act. They include-

• Commission paid to insurance or loan underwriters
• Brokerage paid for the public issue of securities
• Brokerage paid on the transactions of listed securities on the stock exchange,
• Payments made by RBI to banking companies
• Income tax refund
• Payments made to any Financial Corporation under the central finance bill
• Any payments made for LIC policies or other investments in cooperative societies
• Payment of direct taxes
• Income from the savings bank account, recurring deposits, Indra Vikas Patra, NSC or Kisan Vikas Patra inform of interest
• Interest from NRE account
• Commission or Brokerage paid by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees
• Any income payment from a public or private institution that is notified as a NIL TDS organization.
• Any income payment from interest for the compensation in respect to Motor Vehicles Claims Tribunal.

Time Limit to Deposit TDS on Commission or Brokerage under Section 194H of Income Tax Act-

The time limit for depositing TDS on Commission or Brokerage deducted under Section 194H of Income Tax Act generally falls on the 7th day of the month subsequent to the month when the TDS was deducted. This means, TDS that is deducted in June should be deposited by July 7th. However, an exception is made for TDS deducted in March, which should be deposited by April 30th.

Rate of TDS on Commission or Brokerage under Section 194H of Income Tax Act-

Section 194H of Income Tax Act mandates TDS deduction on any payments made in form of commission or brokerage under Section 194H of Income Tax Act at the rate of 5% when the amount exceeds ₹15,000 in a financial year. However, if the PAN is not quoted by the deductee, the rate of tax deduction at source (TDS) on Commission or Brokerage deducted under Section 194H of Income Tax Act will be charged at 20%.

TDS Certificate and TDS Return Filing-

The payer deducting TDS on Commission or Brokerage under Section 194H of Income Tax Act is required to issue a TDS certificate (Form 16A) to the payee, which includes details of the TDS deducted. This certificate constitutes evidence of Tax Deducted at Source (TDS) and is required for the payee while filing their income tax return. The payer is also obligated to file a TDS return (Form 26Q) on a quarterly basis, providing information regarding the Tax Deducted at Source and the corresponding deposits made during each quarter.

Form 15G/15H-

To avoid TDS on commission or brokerage under Section 194H of Income Tax Act, individuals who believe their total income falls below the taxable limit can submit Form 15G (for those under 60) or Form 15H (for senior citizens) to the payer. This self-declaration informs the payer that TDS deduction is not necessary, provided the conditions are met.

Filing ITR for income received from commission under Section 194H of Income Tax Act-

If your primary source of income is commission under section 194H of Income Tax Act, you should file ITR-3. If you want to show commission income under Section 194H of Income Tax Act along with salary income & your commission income exceeds your salary income, you should file ITR-3. However, if your salary income is higher than your commission income, you can typically file ITR-1 and report your commission income under the "Income from Other Sources" section.