Section 194H of Income Tax Act about TDS on Commission and Brokerage
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 in India.
What Is Section 194H of the Income Tax Act?
Section 194H of Income Tax Act deals with TDS levied on the earnings received as commission or brokerage.
Persons other than individuals and HUFs are liable to pay this tax. It is applicable only on income exceeding ₹ 15000 in a financial year. However, individuals and HUFs who need to get tax audit done under Section 44AB have to pay this TDS.
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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.
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. The 194H threshold limit of deduction is ₹ 15000.
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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. 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.
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Interest Rates Under Section 194H
TDS deduction rates under Section 194H for FY 2022-23 is 5%. However, if the payee cannot provide PAN details, the TDS deduction will be at 20%.
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Additional surcharge and education cess are not imposed on the TDS rate. However, different sections under TDS have different rates of deductions.
Definition and Composition of 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
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When Can Entities 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.
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When Brokerage Is Exempted Under Section 194H?
Exemption of TDS deduction takes place in the following cases:
- Brokerage is less than or equal to ₹ 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.
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.
Frequently Asked Questions
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. [Source]
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 of 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 return for last two years.
- A chart of all the payments under relevant heads of expense. In this case, payments related to commission and brokerage. [Source]