Which is the Best Investment Option? ELSS vs. PPF vs. FD
April 12, 2018
How To Make EPF Payment Online on EPFO Portal
April 17, 2018

Section 194H of Income Tax Act, deals with deducting tds on commission or brokerage for any payment made to a person who is acting as an intermediary in relation to purchase and sale transactions. In this guide by H&R Block also know about the rate of tds on commission and it should be deducted in which circumstances.

TDS on Commission or Brokerage u/s 194H

Last Update Date : April 13, 2018

This article deals with tds on brokerage or commission as regulated by section 194H of the Income Tax Act, 1961

What is section 194H of Income Tax Act?

Section 194H focuses on income tax levied on any income by means of brokerage or commission, by any individual who is accountable for paying any amount pertaining to the said nature to a resident, if such income exceeds Rs. 15000. Therefore, any person who is responsible for paying any amount in nature of commission or brokerage to a resident shall deduct tax on behalf of the other and remit the same to the government on his behalf.

What is commission?

Commission or Brokerage includes any payment made in relation to purchase or sale of goods or services (except professional services) or any asset, valuable article or thing (except securities) to a person acting on behalf of the other as an intermediary in relation to the abovementioned transactions.

When to deduct TDS on commission?

Deduction will be made

  • At the time of credit of such income to the account of the payee or to any other account (whether it is referred to as suspense account or by any other name) or
  • 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.

Time limit for depositing TDS

Generally, the tax deducted will be required to be deposited within one week from the end of the month in which such TDS has been deducted. Say, for the month of January the due date is 7th February, just as for the month of March, the TDS will be required to be deposited by 30th April.

What is the rate of TDS on commission?

The rate at which the tds is required to be deducted is 5% of the gross amount of the commission paid. This rate of tax has been reduced from 10% to 5% in Budget 2016 which is applicable with effect from 01.04.2016.
In the case where the PAN of the deductee is not available, TDS will be required to be deducted at a rate of 20%.

Note: If the deductee has furnished an application under section 197 for deduction of tax at a lower or nil rate, then the TDS would be required to be deducted at that respective lower rate or not required to be deducted.

When is it not required to deduct TDS u/s 194H?

TDS is not required to be deducted in the following cases:

  • TDS on Insurance commission as referred to in section 194D
  • Commission paid by the employer to an employee will be covered by section 192
  • Commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees
  • Brokerage or Commission paid to Underwriters in relation to public issue of securities
  • Brokerage on stock exchange transactions of securities
  • Bank guarantee Commission
  • Cash management service charges
  • Commodity warehousing service charges

Who is exempted from deducting TDS and what is the threshold limit for 194H?

There are certain conditions, as discussed below, where the deduction of TDS is exempted on commission or brokerage.

  • If the amount paid or payable as commission or brokerage during the financial year does not exceed Rs 15,000
  • Individual or a Hindu undivided family who is not applicable to Tax Audit during the immediately preceding financial year

What is to be done after deducting and depositing TDS?

All deductors must ensure the proper and timely issue of certificates to the concerned deductee. The certificate must be issued on the following dates:

For the Quarter Time limit for depositing the TDS
April – June 30th July
July – September 30th October
October – December 30th January
January – March 30th May

Consequences of non-deduction or failure to pay the tax deducted

  • Disallowance of Expenditure
    In case the person fails to deduct the amount of TDS to be deducted or has deducted the TDS but fails to pay the same, 30% of the expenditure will be disallowed u/s 40(a) (ia) for the purpose of computing income under the head “Profits and Gains from Business / Profession”
  • Prosecution
    As per section 276B of the Income Tax Act, if any assessee who has deducted the tax at source and fails to pay the same within the time limit to the government, he may be punishable with rigorous imprisonment for a term
    a) Which shall not be less than 3 months
    b) But, it may extend to 7 years; including the fine

Most Frequently Asked Questions:

How will the GST Component Affect the Calculation of TDS?

TDS will not be deducted from the additional component of GST but only on the basic value of the commission paid.

How will the Discount given Affect the Calculation of TDS?

TDS under section 194H is not inclusive of Incentives or discounts provided and offered to the distributors.

Other Important Aspects

  • Whether there would be a deduction of tax at source under section 194H where commission or brokerage is retained by the consignee or agent and not remitted to the consign¬or or principal while remitting the sale consideration. In circular no 619 dated 4th December 1991 it may be clarified that since the retention of commission by the consign¬ee or agent amounts to constructive payment of the same to him by the consignor or principal, deduction of tax at source is required to be made from the amount of commission. Therefore, the consign¬or or principal will have to deposit the tax deductible on the amount of commission income to the credit of the Central Govern¬ment, within the prescribed time.
  • Trade discount allowed by the publisher of newspaper to the advertising agency will not be constituted as commission as the same will be treated as “discount” because relationship between the publisher and the advertising agency is not that of “Principal and agent” but that of “Principal and principal” – Jagran Prakashan Ltd vs CIT (2012)
  • Association of stamp vendors purchasing stamps from the State government at a discount. This discount provided by the government will not be treated as commission as the title of the stamps is passed on to the association (Transaction on principal to principal basis), and the discount allowed to them is like Cash discount and not Commission – CIT vs Ahmedabad Stamp Vendors Association (2012)

In case you need any other assistance related to TDS return filing or deduction, feel free to consult our experts at H&R Block. You can get comprehensive assistance related to your taxes.

  • Share: 

Still Have Questions?