Section 194-H of the Income Tax Act, 1961

Savvy Midha

28 Sep, 2019

Section 194-H of the Income Tax Act, 1961 deals with the deduction of TDS from commission or brokerage income. As per Section 194-H, the TDS has to be deducted by any person who is paying commission or brokerage to any resident individual. Tax is levied on the commission or brokerage income exceeding INR 15,000.

Meaning of Commission or Brokerage

Commission or brokerage means any payment received either directly or indirectly by any individual who is acting on behalf of any other person for:

• Any service rendered or provided other than professional services
• Any service provided in the course of buying or selling of goods or
• Any transaction related to any assets or valuable articles or things other than securities.

Application of Section 194-H

Section 194-H applies on:

• Any individual who is accountable for paying commission or brokerage to an Indian resident
• Any person or HUF that comes under the purview of section-44AB, i.e., their turnover or gross turnover exceeds INR 25 Lakhs and goes up to INR 1 Crore.

Section 44-AB

It is important to have a brief overview of this Section for a better understanding of section 194-H. Any individual who falls within the purview of Section 44-AB is also liable for TDS deduction under section 194-H. Section 44-AB is applicable to:

• An Assessee engaged in a business, the turnover of which exceeds INR 1 Crore in the preceding year.
• An Assessee involved in the business of providing professional or legal service with annual receipts exceeding INR 50 Lakhs in any financial year.
• Any person who opts for the presumptive scheme under section 44ADA and declares their annual income less than the deemed gain or profit.

Rate of TDS on Commission or Brokerage

• Rate of TDS on Commission or Brokerage has been reduced to 5% with effect from Financial Year 2016-17 in the budget.
• Before the budget in FY 2016-17, the rate of TDS on Commission or Brokerage was 10%.
• The TDS is deducted at a flat rate of 5%, which means there is no Surcharge, education cess, or SHEC is levied above TDS.
• PAN is mandatory while paying the TDS to the government. In case the person who receives the commission does not furnish his PAN to the person who is deducting TDS, the rate of TDS for that case would be applicable at the rate of 20% of the Commission amount. 

Exceptions for applicability of Section 194-H

Section 194-H does not apply in the following cases:

• No TDS is required to be deducted in case the one-time amount, or the sum of the total amount paid as a commission or brokerage does not exceed INR 50,000 in any financial year.
• Any individual who has obtained nil or lower rate TDS certificate under section 197.
• Commission or brokerage paid by BSNL or MTNL to the public call franchise.
• Any commission paid as per section 192 as an insurance commission does not come under the purview of this Section. Such insurance commissions are covered under section 194D^[1].
• Any commission paid by a company to its employees is covered under section 192 and not under this Section.
• Payment made by RBI to associate banking companies or NBFCs.
• Payments made by any financial corporations that are registered under the central finance bill.
• Income tax refunds.
• Any payment which is done as an investment towards LIC policy, UTI or any other investment securities of co-operative societies.
• Income in the form of interest received from the savings account, RD, FD, etc
• Interest income received from Kisan Vikas Patra, NSC, etc.
• Interest income from the NRE account.
• Payment of brokerage or commission to the stock exchange for the transactions of securities.
• Brokerage paid to underwriters.

Point of Deduction for TDS

TDS is required to be deducted under Section 194-H in the following events, whichever takes place earlier:

1. The credit of commission income in the account of the recipient of the income

OR

• Payment of commission or brokerage through cash, cheque, draft or any other mode

Due Date for deposit of TDS

The Due Date for deposit of TDS with the government is:

1. When the tax is deducted from such commission from April to February: the due date for deposit of such TDS is 7^th of the succeeding month.

• When the tax is deducted from such commission during March: the due date for deposit of such TDS is on or before 30^th April.

Nil TDS or Lower rate TDS certificate

Nil TDS or lower TDS certificate is issued to an applicant to avail of the benefits of nil or a lower rate of TDS. This certificate is required to be furnished to the person who is deducting TDS while making the payment of commission or brokerage.

• Assessee is required to apply Form 13 to the income tax officer with the following information:
• Name of the assessee
• Complete address of the assessee
• PAN
• Purpose of the payment received
• Income details of last 3 years
• Projected income for the current financial year
• Tax payments made during the current financial year.
• Certificate issued under this Section is valid only till the end of the Assessment Year mentioned on the certificate unless and until the same is canceled by the competent authority.