Section 194H of Income Tax Act - TDS on Commission and Brokerage Explained

Every individual working in the registered sector in India has to pay a specific amount of applicable tax on their income. Now you may wonder what about individuals earning from unregulated means like commissions and brokerages.

Since these also constitute a source of income, therefore commissions and brokerages are also subject to TDS deduction under Section 194H of Income Tax Act in India.

So, read here about TDS on commission and brokerage under Section 194H.

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What is Section 194H?
When is Section 194H Applicable?
Section 194H TDS Rates
When to Deposit the Deduction?
Meaning of Commission and Brokerage u/s 194H
Exemptions
When to Claim Deduction?
Frequently Asked Questions

What is Section 194H of the Income Tax Act?

Section 194H of the Income Tax Act deals with TDS commission or brokerage earnings. As per this section, businesses participating in brokerage or commission-related transactions must deduct a fixed percent of the earned income, as per the 194H TDS rate as tax, and deposit it to the government.

However, from FY 2020-21, 194H TDS section is applicable to individuals and HUFs whose turnover from business is above ₹1 crore or gross receipts from profession are above ₹50 lakh are also required to deduct TDS.

The TDS limit for commission is ₹15,000 in a financial year. Also, note that Section 194H doesn’t apply to insurance commission as it is covered under Section 194D.

However, individuals and HUFs who need to get tax audit done under Section 44AB have to pay this TDS. TAN of the deductor and PAN of the deductee are the most important details required for TDS deduction.

When is TDS Deduction Under Section 194H Applicable?

An authorised entity can deduct TDS on brokerage and commission under Section 194H while:

Crediting the commission in the account of the resident payee or at the time of payment, whichever is earlier.
Paying commission in any suspense account through cash, cheque, or draft.
The payee should have a valid TAN.

TDS is the tax deducted at source on the amount payable to the service provider. It is then remitted to the Central Government of India. Only authorised entities can deduct TDS. Neither an individual nor a HUF (Hindu Undivided Family) can do so except for those who need to get their tax audit conducted.

Section 194H TDS Rates

TDS deduction rates under Section 194H for FY 2024-25, starting October 1, 2024, is 2% after Budget 20224 reduced the TDS rates for specific payments. Earlier the brokerage TDS rate for Section 194H was 5%. Also, the 194H TDS rate is 20% in case the deductee does not submit their PAN.

Additional surcharge and education cess are not imposed on the TDS rate. However, different sections under TDS have different rates of deductions.

When to Deposit the Deduction Under Section 194H?

The due date to pay the TDS deducted during April and February is the 7th day of every month, which implies that for the month of March, the due date to deposit is 30th April. For instance, if TDS on brokerage is deducted on 15th December, it should be deposited with the Government before 7th January.

What is Commision and Brokerage Under Section 194H?

Commission or brokerage is a broad term that comprises the amount received by an individual for working on behalf of another entity. For instance, a building owner is selling his house to a buyer, and you are connecting the buyer and the seller. Then the amount you will get from them is commission. TDS deduction will be applicable if the payer is authorized for TDS deduction.

Parameters considered as commission under Section 194H are:

A person working on behalf of another person
Service-related to selling or buying of any product
Any service apart from specialized service
Transaction linking assets or prized articles

When is Brokerage Exempted Under Section 194H?

Exemption of TDS deduction takes place in the following cases:

Brokerage is less than or equal to brokerage TDS limit, which is ₹15,000 in a financial year.
An employer is paying salary or commission to the employee (comes under Section 192 and not 194H).
Commission on insurance income and loan underwriting.
An individual with a lower or nil TDS certificate from an authorized body will enjoy TDS exemption for all services.
Paying financial corporations under the range of central finance.
Charges imposed for warehouse services.
Interest from the NRI account.
Payments done by the Reserve Bank of India to any bank.
Income by interest from any savings with bank and post office.
Brokerage for providing security to the public.
Commission imposed on the transaction by using debit or credit card in between an acquirer bank and merchant organization.

When to Claim Nil Tax or Lower Deduction Under Section 194H?

Under 194H TDS on commission, an entity can claim lower or nil deduction when the amount deducted is higher than the total amount liable as income tax in a fiscal year. To apply for such a deduction, you have to file Form 13 and submit it online to the income tax department.

TDS deduction is a vast chapter. There are different sections under TDS; however, here, we have a focus on Section 194H. All this information will help you know the exemption scenarios, applicability, and tax limitations on brokerage services.

FAQs about TDS Section 194H

All

Is TDS deduction under Section 194H applicable on GST bills?

No, TDS deduction is not applicable on the GST portion of any bill covered under Section 194H. However, it may be applicable on the amount of commission.

What is the rate of TDS on commission under Section 194H?

The 194H TDS rate is 5%, which is proposed to be reduced to 2% by Budget 2024, with effect from 1st October 2024. However, if the PAN details are not provided, then brokerage TDS rate of 20% is applicable.

What is the document checklist for claiming NIL Tax or Lower TDS under Section 194H?

Following documents are necessary for claiming NIL tax or lower TDS:

PAN card.
TDS account number of paying parties.
Financial statement and income statement for last three years.
The audit report of the previous three years.
Copy of acknowledgement of the income tax returns of the previous three years.
E-TDS has returned for the last two years.
A chart of all the payments under relevant heads of expense. In this case, payments related to commission and brokerage.

What if I do not deposit TDS under Section 194H?

Failure to deposit TDS will result in an interest at the rate of 1.5% per month, or part of a month from the day the tax was deductible until the date the tax was deducted.

Who is eligible to deposit TDS under Section 194H?

All individuals who earn income from any sort of commission or brokerage are liable to deposit TDS on commission.

What is the due date to deposit TDS under Section 194H?

TDS deducted between April and February should be deposited by the 7th of the following month. TDS deducted in March should be deposited by 30th April.

Can I deduct my expenses from commission income?

Yes, you can deduct all of your expenses from your commission income while filing your income tax return.

How much is the brokerage TDS limit under Section 194H?

The threshold TDS 194H limit for commission is ₹15,000 in a financial year.

Which ITR should be filed for income received from commission?

For commission or brokerage under Section 194H, you need to fill ITR-3. However, if the amount of commission is small then you have to fill ITR-1.

Is TDS applicable on commission as part of my income?

Yes, TDS applies to commission or brokerage income. When the commission or brokerage is subject to GST, TDS is calculated based on the base amount before GST is added. To accurately determine the final taxable amount of your commission, consider using an income tax calculator.