Section 194H - TDS on Brokerage and Commission

When you associate with somebody for providing services and earn a brokerage or commission in return, did you knew you would have to mention the same while filing your Income Tax Returns? Those who are not familiar, must know that TDS on commission and brokerage also gets deducted under section 194H. Read on!

What is Section 194H of IT Act?

Section 194H is specifically dedicated to TDS deducted on Income earned through brokerage or commission by any person who is liable to pay to an Indian resident. hindu undivided family and individuals who were earlier covered under section 44AB also require to deduct TDS.

However, keep in mind that this section does not cover the insurance commission mentioned in section 194D.

Defining Brokerage/Commission

Brokerage or commission comprises any payment receivable or received, indirectly or directly, by a person on behalf of somebody else for the rendered services (excluding professional services). It also includes any service that is related to purchasing and selling of products. On top of that, transactions done in relation to valuable thing or article and any asset (except for securities) also get covered under this section.

Also, deductions made on the following transactions don’t get covered under this section:

• Commission or brokerage paid to underwriters
• Brokerage related to stock exchange transactions of securities
• Sub-brokerage and brokerage on the public issue of securities

TDS Deduction Under Section 194H

TDS should be deducted at the time of such income getting credited to the account of the payee, irrespective of whether or not the account is in the name of the person to whom the payment is to be credited. Further, the payment should be made via any of the following methods:

• A draft
• A cheque
• A cash deposit

Rate of Tax Deduction at Source

The 194H TDS rate is counted as below:

• According to the Union Budget 2020, the TDS gets deducted at the rate of 5%
• No education cess, secondary and higher education cess, surcharge or SHEC is added to the rate; thus, the tax is deducted at source according to the basic Tax slab
• In case the PAN is not furnished, the TDS then gets deducted at 20% of the brokerage or commission amount

No TDS Deduction Under Section 194H

• No Deduction will be made if the amount to be paid is up to Rs. 15,000 during a specific financial year
• If the person has raised an application to the assessing officer under this section for deduction of tax at lower or Nil rate
• If the brokerage or commission by the Mahanagar Telephone Nigam Limited (MTNL) or Bharat Sanchar Nigam Limited (BSNL) pays to their franchises of the public Call office
• In case the Bank is guaranteeing commission
• If Cash Management service charges are there

Key Points to Note about Sec 194H

• If GST has been levied on brokerage and commission, the deductor will be required to deduct TDS as per the basic value of the brokerage or commission paid and the GST component will not be counted
• If the brokerage or commission is more than the exemption limit of Rs. 15000, TDS will be deducted on the entire amount paid during the specific financial year and not just the amount that is more than the exemption limit
• In case the agent is retaining the commission amount while settling the sale aspect, TDS on this amount will be deposited along with the principal
• PAN, as well as the TAN numbers of the person, is required while depositing the TDS on commission and brokerage
• If the deduction is on the behalf of or by the Indian government, it has to be deposited on the same date of when it was collected

Additional Basic TDS Exemptions on Brokerage and Commission

Apart from the payment types mentioned above, the following payments also get exempted from the TDS deduction:

• Payments by RBI to associate NBFC or banking companies
• Payment done to any private or public institution which has been subjected to Nil TDS
• Any payment to a financial corporate under the central finance bill
• Income gained in the interest form from an NRE account
• Payment received in the form of ITR
• Income in the interest form from Kisan Vikas Patra, NSC, or Indira Vikas Patra
• Payment toward UTI units, LIC policy and any other type of investment in a co-operative society
• Income in the interest form from a Savings Account
• Direct tax payment
• Revenue in the form of Recurring deposit interest

FAQs

1. Who needs to pay taxes under Section 194H?

A: Section 194H covers the income tax deducted on any income earned by commission or brokerage by any person who is an Indian resident. Individuals under the Hindu Undivided Family covered under section 44AB are also liable to deduct the TDS.

2. What is the rate at which the tax is deducted?

A: The rate of TDS is calculated as 5%. It will be 3.75% for transactions carried out from March 14th, 2020, in March 31st, 2021.

3. What is commission brokerage?

A: Commission brokerage is inclusive of payment received or will be received by an individual acting on behalf of another individual. The payment may be received directly or indirectly.

4. What are included in the TDS charged for brokerage commission?

A: TDS will be charged if the payment received exceeds Rs. 15,000. However, commission earned on insurance is not covered under TDS of section 194H.

5. Are there any exceptions to the rule?

A: No, there are no exceptions to the rule. The TDS will be charged at 5% or 3.75%, depending on the time when the transaction was made. You will be exempted from paying TDS if only your earning is below Rs. 15000.

6. At what area TDS on brokerage commission is charged?

A: Any individual who is a resident of India and is earning an income above Rs.15000, through commission or brokerage, is liable to pay this TDS. Similarly, individuals covered by the Hindu Undivided Family of Section 44AB of the Income Tax Act are also liable to pay the tax under section 194H.

7. When can you apply for tax deduction under Section 194H?

A: You can apply for a tax deduction if the commission is a result of a franchise granted by the Bharat Sanchar Nigam Limited (BSNL) or the Mahanagar Telephone Nigam Limited (MTNL). You can also apply for a deduction if a bank guarantees the commission. You can apply for the deduction if you have already paid for cash management charges.

8. How can you make the payments?

A: You can pay the tax online and offline modes.

9. When do you need to deposit the TDS?

A: Tax deducted from April to February must be deposited by May 7th. Tax deducted on March 15th must be deposited before April 30th.

10. Can I deposit the TDS Return online?

A: Yes, you can deposit TDS return online by generating Form 16 and creating and validating an FVU File.

Conclusion

Earning a commission or brokerage does not seem to be a serious job. But, in the eyes of the government - it is liable to filing and TDS deductions under section 194H. So, the next time you get associated with someone and start working on the commission or brokerage Basis, don’t forget to remind them to file your TDS!