As per section 194H, any person except individual & HUF, who is responsible for paying to a resident any income by way of commission or brokerage, shall deduct TDS at the 10%. However, this rate of TDS has been reduced from 10% to 5% in Budget 2016. This revised rate would be applicable from financial year 2016-17. 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 the individual or HUF is liable to get his books of accounts audited under section 44AB i.e; Turnover/ receipts exceed Rs. 25 lakhs/ 1 crore.
What is the meaning of Commission or Brokerage under section 194H?
Commission and Brokerage for the purpose of Section 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 article, asset or things except securities.
The Section clarifies that the services received shall not include professional services. The professional services within its ambit includes legal, profession of accountancy, technical, interior design services etc.
Commision 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 under section 194H?
TDS shall be deducted at the time of:
- Actual payment of cash or
- Crediting the sum to the payees account or
- Issue of cheque, draft or by any other mode, whichever is Earlier.
It shall also be noted that when any payment to be made to the contractor is credited to a “ suspense Account” or any other account by whatever name called in the payer’s books of account, it shall be considered as deemed payment and also tax has to be deducted on such amount.
Who is exempt from deduction of TDS u/s 194H?
Section 194H shall not apply in the following cases :
- If the amount paid or payable during the financial year does not exceed Rs. 15,000 as per budget 2016. Earlier the threshold limit was Rs. 5,000.
- TDS on insurance commission shall not be deducted under this section. Since 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 commision paid by the employer to the employee will be covered under section 192.
1. No deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to the payee, does not exceed Rs. 5,000 (Rs. 2,500 up to 30.06.2010)
2. No tax shall be deducted on any commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office franchisees (The third proviso to section 194H inserted w.e.f. 1-6-2007)
Where assessee, a manufacturer of bicycles, was giving trade incentive to dealers, Tribunal was justified in holding that if dealers were selling goods at price for which they were purchasing from company, such trade incentive would amount to commission for purpose of section 194H.
Tax deduction at source under section 194H should not be applicable in respect of 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.