ON THIS PAGE: What is Section 194H? | When is TDS Under Section 194H Deducted? | What does Commission and Brokerage Mean Under Section 194H? | Exceptions to Commission and Brokerage | What is the Rate of TDS? | When Must TDS Not be Deducted Under Section 194H? | What is the Time Limit on Depositing TDS? | TDS at a Lower Rate | FAQs on 194H
Section 194H of the Income Tax Act provides details on TDS deduction for commission and brokerage by a resident Indian. A resident individual who pays any type of brokerage or commission is responsible for tax deduction under Section 194H.
Let's understand what is Section 194H, when to deduct TDS under this section, exceptions, and more in detail.
Section 194H focuses on income tax deductions on any income in the form of commission or brokerage by an individual liable to pay to a resident. Individuals and HUFs who were covered under Section 44AB must also deduct TDS. From FY 2020-21, an individual or HUF whose turnover exceeds Rs. 1 crore or gross receipts from profession crosses the threshold of Rs. 50 lakh is mandated to deduct TDS.
Note: Section 194H does not include the insurance commission mentioned in Section 194D.
According to Section 194H, TDS on commission and brokerage shall be deducted when the payer credits the money to the payee. Irrespective of the payment mode and the type of account, tax deduction at source is done under Section 194H.
Commission or brokerage is any payment,
Received or receivable
Directly or indirectly received
By a person who is acting on behalf of another person
TDS on commission or brokerage under Section 194H includes:
Payment for services rendered (not professional services)
Payment for any services in the course of buying or selling goods
Relates to any transaction concerning assets except securities
Let's explore a few exceptions of commissions and brokerage on which TDS is not deducted under Section 194H.
Commission paid to insurance or loan underwriters
Payments made by RBI to banking companies
Any type of brokerage paid on transactions relating to securities listed in the stock exchange
Payments as an income tax refund
Any brokerage paid towards the public issue of securities
Any payment towards financial corporations under the central finance bill
Payment of Direct Taxes
Payment towards LIC policies and other investments in cooperative societies
Interest from NRE account
The Section 194H TDS rate is 5% and no surcharge, education cess, or SHEC shall be included in the said rate. However, if the payee does not provide his PAN, Section 194H TDS shall be deducted at a 20% rate.
Section 194H of the Income Tax Act provides tax exemptions if the payment amount or aggregate amounts do not exceed Rs. 15,000. They can submit an application to the Assessing Officer under Section 197 for a NIL or lower tax deduction.
If the tax is deducted any time between April to February, the payer must deposit it on or before March 7. However, if the tax is deducted in the month of March, it must be deposited before April 30.
The payee can submit an application to the Assessing Officer under Section 197 for a lower or zero tax deduction. The PAN of the payee can be validated by submitting the 197 certificate. The payee must confirm the stipulated limit for the certificate and ensure his/her income doesn't exceed it. Additionally, they must ascertain that the right certificate number is quoted in the statement while applying for no or lower tax deductions.
The threshold for tax deduction under Section 194H is Rs. 15,000.
Section 194H focuses on tax deducted on commission and brokerage.
5% TDS is charged on commission and brokerage. No surcharge, education cess, or SHEC must be added to this Section 194H TDS rate.
If your main source of income is commission, you must file ITR-4.