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.
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.
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.