SECTION 194H - TDS ON COMMISSION AND BROKERAGE

TDS U/S 194H: TDS ON COMMISSION AND BROKERAGE

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 194H of Income Tax Act?

Section 194H of Income Tax Act, 1961 mandates that TDS to be deducted by the payer while making any commission or brokerage payment to resident person.

3. When is TDS to be deducted under Section 194H?

TDS is required to be deducted: -

• At the time of payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

4. Who is required to deducts TDS under Section 194H?

Any person other than Individuals and HUF (Individuals and HUF required to deduct TDS, if last year turnover is more than Rs. 1 crore in case of business or gross receipts more than Rs. 50 lakhs in case of profession.) are required to deduct TDS while making commission or brokerage payment to resident person.

NOTE: -

This section i.e. TDS on payments relating to commission or brokerage is not applicable while making such payments to non-resident.

Example: -

Q. DEHP Ltd. a public sector bank in India, paid Rs. 20 crores to M/S NFGS Ltd. an organization that provides ATM network to the banks as commission for facilitating ATM credit/ debit cards? Whether TDS u/s 194H applies on such transactions?

A. The relationship between DEHP Ltd. a public sector bank, and M/S NFGS Ltd. is not of an agency but of two independent parties on principal-to-principal basis. Therefore, TDS provisions u/s 194H would not be attracted on commission made by DEHP Ltd.

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5. Rate of TDS under Section 194H?

The TDS rate under this Section is: -

NOTE: -

It is to be noted that effective 1^st October 2024 the TDS rates for payment of commission on sale of lottery tickets to any person will be reduced to 2% from 5%.

6. Exemption under Section 194H?

No TDS if: -

• The commission paid does not exceeds Rs. 15,000.
• Self-declaration provided under form 15G/ 15H.
• Payments by BSNL or MTNL to their public call office franchises.
• Commission or brokerage related to security like commission to underwriter, brokerage on public issue etc.

7. Time limit for deposit of TDS under Section 194H?

The due date for deposit of TDS is as below: -

8. What is the due date for filing of TDS return under Section 194H?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: -

9. Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10. Fees/ Penalties for Late/ Non- Filing of TDS u/s 194H?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

FREQUENTLY ASKED QUESTIONS?

Q. What is the threshold limit for TDS under 194H?

A. The threshold limit for TDS under 194H is Rs. 15,000.

Q. Stamps taken by stamp vendors at lower price from court attracts TDS u/s 194H?

A. NO, stamp vendors take stamps from court at lower value and give it to people at the value engraved in the stamp. It was held by the court that such margin does not amount to commission, but it is in the nature of discount given to them by courts as stamp vendors deal on principal-to-principal basis.

Q. Does this applies to primary commission given by Airline company to travel agents, or does it apply to both primary as well as secondary?

A. It applies to both primary and supplementary commissions given by Airline company to travel agents.

We can understand by following example: -

In the above case, TDS u/s 194H is required to be deducted on standard commission of Rs. 7,000 and supplementary commission of Rs. 20,000 i.e. total 2% to be deducted on Rs. 27,000.

Q. At what amount TDS is to be deducted at gross amount or net amount?

A. TDS should be deducted at the amount after deduction of all taxes like Gst.