Section 194-H | TDS on commission and Brokerage.

Overview:

Commission is paid as a form of incentive to motivate individuals or teams to sell products or services.Brokerage is paid as a fee for the services that brokers provide in facilitating transactions, such as buying or selling stocks, real estate etc. Such compensations are considered as source of income under The Income Tax Act,1961 on which tax is deducted at source (TDS) u/s 194H when such commission or brokerage amounts to more than the prescribed limit. Read all details about section 194H TDS on commission or Brokerage.

What is section 194H TDS on commission and brokerage ?

TDS section 194H of the Income Tax Act, 1961 is a tax rule that ensures income tax is deducted & deposited from the payments of commission or Brokerage. It is applicable to any person paying commission or brokerage to a resident individual. TDS on commission or brokerage is deducted @ of 5%. With effect from 1st October, 2024 rate of TDS on commission or brokerage is to be deducted at 2% instead of 5%.

Meaning of commission and Brokerage

“Commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person

• for services rendered, or
• for any services in the course of buying or selling of goods, or
• in relation to any transaction relating to any asset, valuable article or thing, other than securities.

Applicability of section 194H TDS on commission and brokerage.

Section 194H, This section is applicable to “Any person other than Individual & HUF paying any commission or Brokerage to a Resident person is liable to deduct TDS under section 194-H”, as commission or brokerage is considered as source of Income.

Individual & HUF are required to deduct TDS, if last year turnover is greater than Rs.1 crore in case of business or Gross receipts is greater than Rs.50 lakhs in case of profession.

TDS u/s 194H is not applicable to insurance commision which is covered under section 194D.

Rate of TDS on commission and Brokerage

TDS on commission or brokerage is 5% for transactions before 1st October 2024. Rate of TDS on commission or brokerage will be 2% instead of 5%, with effect from 1st october, 2024.The rate of TDS will be 20%, if the deductee (the person to whom payment is made) doesn’t provide PAN details.

Threshold limit of TDS on commission and Brokerage

Under section 194-H, TDS @ 2% is to be deducted from the payment of commission or Brokerage if aggregate amount of commission or brokerage exceeds Rs.15,000. No TDS on commission or brokerage u/s 194H is required to be deducted if commission or Brokerage is up to ₹15,000.

Time of TDS Deduction on commission or Brokerage

TDS on commission and Brokerage is required to be deducted :

• 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 by issue of a cheque or draft or by any other mode, whichever is earlier.

Time to Deposit TDS on commission or Brokerage

TDS on commission or brokerage which is deducted and is required to be deposited to the central government. Time to deposit of TDS on commission or brokerage is below:

For example,Tax on commission is deducted on 15th December and needs to be deposited on or before 7th January. Tax on commission is deducted on 21st March ; needs to be deposited on or before 30th April.

If TDS is deducted on or behalf of the Government, it is deposited on the same day.

When TDS on commission is not Deducted ?

Under the following cases TDS u/s 194H is not Deducted:-

• No TDS u/s 194H if the amount or aggregate amount of commission and Brokerage up to Rs.15,000.
• No TDS u/s 194H on payments by BSNL or MTNL to their Public Call office franchises.
• No TDS u/s 194H if commission or Brokerage related to Securities like commission to Underwriter, Brokerage on public issue etc.
• Individuals and HUF whose turnover / gross receipts in preceding financial year does not exceed the amount specified (1 crore / 50 lakhs ) shall not be liable to deduct TDS under this section.
• No TDS u/s 194H , if a person has made an application to assessing officer (AO) under section 197 for TDS deduction at NIL rate or at a Lower rate.
• No TDS u/s 194H in case commission or brokerage is paid to non-resident Indians.
• TDS u/s 194H is not applicable to insurance commission which is covered under section 194D.

Penalties & Fines under section 194H

Here are the penalties and fines under TDS on commission and Brokerage:

• TDS is not deducted: If a deductor has not deducted the TDS from the payment of such income, then it charges interest of @1% per month till the date TDS is deducted .
• TDS is deducted but not deposited: If a deductor has deducted the TDS from commission or Brokerage, but has not deposited the collected tax to the government, then it charges interest @1.5% from the date when TDS is deducted till the date of deposition.

Some Important points for TDS on commission and Brokerage

• When TDS on commission and Brokerage is subjected to GST, then TDS will be deducted from the initial value without adding GST component.
• At the time of settlement the payment agent retains TDS amount with himself, still the amount of TDS will be deposited with the Government.
• TDS will be deducted only if the amount or aggregate amount exceeds the threshold of Rs.15,000 given u/s 194H.
• Rate of TDS u/s 194H will be 2% instead of 5%, with effect from 1st october, 2024.

Why Choose Bizfoc as a TDS Consultant ?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations
• Prescribe forms as per the necessity
• Helps in accurate computations for TDS computations and returns
• Tailored advice and guidelines for TDS filing

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

In conclusion, section 194H of Income Tax Act covers details of TDS on commission or brokerage payments, ensuring that tax from such income is appropriately deducted and deposited with the government. Compliance with this section is essential for both payers and recipients to avoid penalties and interest.

FAQ’s