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

Section 194H of the Indian Income Tax Act, 1961 pertains to tax deducted at source (TDS) on commission or brokerage payments. As per this section, any person who pays commission or brokerage exceeding Rs. 15,000 to a resident individual or a Hindu Undivided Family (HUF) must deduct TDS at 5%.The TDS deduction must be made at the time of crediting the commission or brokerage amount to the payee's account or at the time of payment, whichever is earlier. The TDS must be deposited with the government within the specified timeframe. However, if the commission or brokerage amount paid or credited during the financial year does not exceed Rs. 15,000, no TDS deduction is required under Section 194H.

TDS stands for tax deducted at source. It is a method of collecting income tax in which the payer (the person or the entity making the payment)deducts a certain percentage of payment before as tax before making the payment to the payee i.e (the person receiving the payment)The deducted amount is then deposited with the government as tax on behalf of the payee.TDS is applicable on various types of payments such as salaries, interest, rent, commission, and professional fees

In India, if someone pays commission or brokerage to someone else for services related to buying or selling goods or assets (excluding securities), they may need to deduct TDS. The TDS rate is 5% of the payment amount for most resident recipients, but if the recipient hasn't provided their PAN number, the TDS rate is 20%. This rule applies to non-individual and non-HUF recipients whose turnover exceeded one crore in case of business and fifty lakh in case of profession.In India, both resident and non-resident recipients of commission and brokerage payments are subject to TDS (Tax Deducted at Source). However, for resident recipients who are individuals or Hindu Undivided Families (HUFs) , TDS only needs to be deducted if their turnover in the previous year exceeds one crore for business or fifty lakhs for profession. For all other resident recipients, TDS must be deducted regardless of their turnover. Rate: The TDS rate is 5% of the commission/brokerage payment amount. However, if the recipient has not provided their PAN (Permanent Account Number), the TDS rate will be 20%.

Under Section 194H of the Indian Income Tax Act , the deduction of TDS on commission or brokerage payments must be made at the time of crediting the party or at the time of payment by cash, cheque, draft, or any other mode, whichever occurs earlier. However, no TDS deduction is required if the amount or aggregate amounts of such income to be credited or paid during the financial year do not exceed INR 15,000. Also Read : What is the Difference Between Assessment Year and Financial Year?

If an individual pays commission or brokerage to a resident individual, they must deduct TDS at the time of crediting or paying the commission to the payees.However an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed[one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section.

The deposit shall be done on or before 7thof the following month and for the month of March on or before 30thApril.The payee can claim credit for the TDS deducted against their total liability at the time of filing their income tax return.

The scheme of deducting tax at source might create hardships for few individuals specifically for* Taxpayers who has incurred loss for the current year.* Taxpayers who have carried forward losses of previous years to be set off during the current year.* Taxpayers who are eligible to claim certain deductions or exemptions during the year.Therefore, an application under section 197 can be made for lower or NIL deduction of TDS. The approval for lower or NIL deduction rests with the Assessing Officer and is at his discretion.The Income tax officer shall issue lower or NIL TDS certificate after he approves the same.

Section 1: Interest on Non-Deduction of TDS

Section 2: Exceptions to Non-Deduction of TDS

• Interest charged in case of Non-Deduction of TDS If TDS is not deducted on certain payments, a 1% monthly interest penalty will be levied from the date on which TDS was deductible until the date on which TDS was actually deducted.In cases where payment is made to a resident and TDS is not deducted, the person liable to deduct TDS will not be considered a defaulter if the recipient has filed their income tax return under Section 139, paid the applicable taxes due on the income declared in the return, and the resident payee furnishes a certificate from an accountant in Form No. 26A to this effect.
• Interest in case of Non-Payment of TDS Interest in case of non-payment of TDS: Interest shall be levied @1.5% for every month or part of the month from the date on which TDS was deducted till the date on which TDS paid.
• Impact of Non-Depositing TDS on Form 26AS and Credit Availability When the person has not deposited TDS to the income tax department, then the TDS shall not be available against the PAN in form 26 AS . Hence one cannot avail the credit for the same, if anyone still avails credit that would be a mismatch in the TDS claimed and the taxes paid and the income tax department could even send notice for such mismatch.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.