Introduction:

Income Tax Act Section 194H is primarily involved with the amount of income tax charged on income generated through commission or brokerage. TDS deduction is required for any person who is responsible for paying commission (the commission should not be taken for anything related to insurance), that is, brokerage or commission defined under section 194D. Individuals and the Hindu Undivided Family are required to pay TDS on Commission.

What are Brokerage and Commission?

Section 194H of the Income Tax Act refers to “Commission and Brokerage” as any payout receivable or received, actively or passively, by an individual acting as a representative of another individual for services provided (other than professional) or for any rendered services in the topic of selling or purchasing products or in regards of any payment relating to an asset, beneficial article, or item that is not stocks or any other security.

What does Income Tax Act Section 194H implies?

  1. Section 194H emphasizes income tax assessed on any income derived from brokerage or commission paid to any Indian resident by an individual liable for payment.
  2. Individuals and HUF are also required to deduct TDS under Income Tax Act Section 44AB.
  3. Income Tax Act Section 194H doesn’t imply the insurance commission mentioned in section 194D.
  4. TDS shall be deducted under Section 194H when such revenue is paid in the payee or any other provided account.
  5. At the moment of payout, it may be designated as a suspense account or something else, and it may be paid in a cheque, cash, or DD.

When TDS on Commission needs to be deducted under Section 194H?

TDS on commission under Income Tax Act Section 194H shall be deducted when such income is credited to the payee’s account or any other provided account. Whether referred to as a suspense account or any other term during payment, of such money in cash, by the issuance of a draught, cheque, or via any other method.

Exceptions:

  1. There must be no deduction under Section 194H if the amount or aggregate sums of such revenue to be paid or credited during the fiscal year do not surpass the 15,000 INR limitation.
  2. The person may apply to the current assessing officer under Income Tax Act Section 197 for a tax deduction at a lesser or NIL rate.
  3. Any commission or brokerage payments made by BSNL or MTNL to its public call centre franchisees.

What is the TDS on Commission Rate?

TDS is deducted at a rate of 5%. The TDS on commission levied is 3.75% for transactions made between 14th May 2020 and 31st March 2021. There will be no education cess, surcharge, or SHEC applied to the aforesaid rates. As a result, the basic rate of TDS on commission will be levied at the point of sale. If the deductee does not provide PAN details, the TDS rate will be fixed by 20% in all circumstances.

TDS on Commission at a Lesser Rate

The deductee (the individual whose TDS is deducted) may apply to the current assessing officer under Income Tax Act Section 197 for a tax deduction at NIL or a lesser rate.

  • Authenticate the deductee’s PAN by presenting a 197 certificate.
  • The Document must be authentic for the PAN details, Section, Rate, as well as applicable financial year specified in the submitted statement.
  • Check that the document’s threshold limit has not been surpassed in prior quarters.
  • The document should include the appropriate certificate number.

When TDS on Commission needs to be deposited?

Taxes deducted from April to February must be deposited before or on the 7th day of the following month. TDS on commission deducted in March must be deposited before or on April 30th.

For instance, TDS deducted on April 25th must be submitted before or on May 7th, while TDS deducted on March 15th must be submitted before or on April 30th.

Conclusion

Section 194H applies to TDS deducted on commission or brokerage revenue by any individual responsible for payment to any resident. Persons and Hindu Undivided Families covered by Section 44AB must deduct TDS on commission. Individuals and HUFs with a company turnover of more than 100,00,000 INR or total receipts from any profession of more than 50,00,000 will be obliged to deduct TDS on commission beginning in the fiscal year 2020-21. However, it should be noted that Section 194H TDS on commission does not include commission related to an insurance policy under Section 194D.


FAQ’s

TDS on commission under Income Tax Act Section 194H needs to be deducted at the moment such income is credited to the account of the payee or any other account termed by any other title, or at the moment payment is made by any method, whichever is earlier.


No. TDS on commissions under Section 194H should not be deducted on commissions related to insurance policies under Section 194D.


Yes. As per Income Tax Act Section 194D, TDS on commission and brokerage should be charged irrespective of the means of payment.