As per the provision of Section 194H, if a specified person has made any payment to a resident person in the form of commission or brokerage and if it exceeds the threshold limit then tax has to be deducted under this section.
What is Section 194H?
Section 194H of the Income Tax Act states that any person except individual & HUF, is paying to a resident person commission or brokerage and if the overall payable amount exceeds INR 15,000 to a payee then they shall deduct TDS at the rate of 5%. Also, no additional surcharge or education cess is required to be added to the above rate.
However, Individuals and HUF are also liable to deduct TDS on commission or brokerage in case they were liable to get their books of accounts audited in the previous FY under section 44AB i.e. (1 cr in the case of business and 50 lakhs in the case of the profession).
What is the meaning of Commission or Brokerage u/s 194H?
Commission or Brokerage u/s 194H shall be considered as payment made for services received in the course of:
- Buying or selling of goods
- Or in relation to any transaction connected to valuable articles, assets, or things except securities.
The section clarifies that the services received shall not include professional services. The professional services within its ambit include legal, the profession of accountancy, technical, interior design services, etc.
Commission or Brokerage includes any payment receivable or received, directly or indirectly, or by a person acting on behalf of another person.
When to deduct TDS on Commission or Brokerage?
TDS u/s 194H shall be deducted at the time of:
- Crediting the sum to the payee’s account either in cash or
- By issue of cheque, draft, or by any other mode, whichever is earlier.
Exemptions from deduction of TDS u/s 194H?
TDS deduction under section 194H shall not apply in the following cases :
- If the amount paid or payable during the financial year does not exceed INR 15,000.
- TDS on insurance commission shall not be deducted under this section. Since the TDS on insurance commission is covered under section 194D.
- No deduction of TDS on any commission or brokerage payable by the BSNL or MTNL to their public call office franchisees.
- Any commission paid by the employer to the employee will be considered as a salary component hence TDS on the same shall be covered under section 192.
- If the person has obtained a lower rate or Nil rate TDS certificate from an assessing officer.
TDS Return
The payer deducting commission or brokerage of the payee has to file a quarterly return of TDS in Form 26Q. The returns should be filed within the specified time limit from the end of the relevant quarter to avoid any late fees.
TDS Certificate
The deductor should provide the TDS certificate in Form 16A to the deductee whose tax has been deducted. The deductor can download such a form from their TRACES account.
FAQs
Whether to treat a discount as a commission or not depends on the nature of the transaction. In one of the cases of Vodafone v/s ACIT, it was held that discounts given by telecom providers to sellers of recharge vouchers or top-up packs are being considered as a commission rather than a discount.
If a manufacturer is providing trade incentives to its dealer for achieving the targets of sales then such trade incentives would amount to a commission u/s 194H.
TDS u/s 194H is not applicable in respect of the Turnover Commission payable by the Reserve Bank of India to the Agency Banks (Banks authorized for conducting Government business) for performing the general banking business of the Central and State Governments on behalf of RBI.
Hey @Dia_malhotra
As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.
Hope this helps!
Hey @HarishMehta
TDS u/s 194J needs to be deducted by deductor other than an individual or a HUF, @ 10% on any amount paid or payable to any which is in excess of INR 30,000 as:
Hope this helps!
Hello @the_AK,
Against gross income, you can claim business expenses that you have incurred for earning that income. So you can claim this service fee as a business expense from the gross income received by you.
Hope this helps!
Hey @Bharti_Vasvani can you please help here?
Hello @Anuj_Agarwal,
TDS will be deducted by the company when the interest is actually paid on the securities, so at that time whoever is the owner of such security shall receive the interest and can claim credit of interest.
Hope this helps!
Hey @Anuj_Agarwal,
You can check out this article for more clarity:
Hope this helps!
I have respectable salary income and 1000 insurance commission…ie old commission…not claiming any expenses…can i show it as other income in itr1 or have to file itr 3
Hi @Shivam_B
If you have income from salary and income from insurance commission (business income), then you will be required to file ITR 3.
Itr 3 is so big…have to pay heavy charges…for filing…will it be defective if i do so ie reporting 1000 as other income in itr1 along with salary income…have closed down the insirance work since yesrs…i even contacted commssiom giving broker and closed my commission account…still they are showing in 26as wheress i am not receiving in real
Hi @Shivam_B
As per the recent utilities, ITD gives you the option to select only the schedules applicable to you while filing ITR.
Thus, you are not required to go through the entire ITR 3 form. You can also prepare and file ITR on Quicko, where you can upload form 16 and add commission income under the head “Business & Profession” and file ITR 3, without any charges as Quicko is a DIY platform helping individuals to file taxes.