TDS under Section 194H is to be deducted by any person on payment of commission or brokerage to a resident person.
When is Section 194H applicable?
As stated above, section 194H is applicable on income tax deducted by any person on any income by way of commission or brokerage to a resident person.
Further, individuals and HUFs who were covered under Section 44AB are also required to deduct TDS under Section 194H.
From Financial Year 2020-21, individual and HUF whose turnover from business is above Rs 1 crore or gross recipts from profession are above Rs 50 lakh are also required to deduct TDS.
What is commission and brokerage for purposes of Section 194H?
As per Section 194H, Commission or brokerage includes any payment
• received or receivable,
• directly or indirectly, OR
• by a person acting on behalf of another person
Also Read: Types of TDS Certificates
TDS on commission or brokerage includes,
• for services rendered (not being professional services), or
• for any services in the course of buying or selling of goods, or
• in relation to any transaction relating to any asset, valuable article or thing, except securities
Cases where TDS is to be deducted under Section 194H
The cases where TDS is to be deducted under Section 194H are as follows:
• Payment of commission or brokerage is made to a resident person
• The aggregate of the amounts of such income credited or paid or likely to be paid or credited during the financial year exceeds Rs. 15,000.
Situations where TDS is not to be deducted under Section 194H
Following are the situations where TDS is not to be deducted under Section 194H:
• Payment of commission or brokerage is made to a non resident person
• The aggregate or the amounts of such income credited or paid or likely to be paid or credited during the financial year does not exceed Rs. 15,000
• Brokerage or commission payable by BSNL or MTNL to their public call office franchisees.
• Commission or referral income is paid by employer to his employee. This liable for TDS deduction under Section 192.
• Payment is for insurance commission, which is covered under Section 194D.
• Bank guarantee commission.
• Depository charges on maintenance of DEMAT accounts.
• Cash management service charges.
• Charges for warehousing services for commodities.
• Underwriting service charges.
• Clearing charges.
• Commission on Debit or credit card for transactions between the merchant establishment and acquirer bank.
Apart from this, the Person can make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.
Also Read: 10 Best Ways to Save Taxes
When is TDS Deduction applicable?
TDS deduction is applicable on
• Crediting the commission in the account of the resident payee
• Paying commission in any suspense account through cash, cheque, or draft.
Rate Of TDS And Threshold Limits Under Section 194H
| Particulars | TDS Rate (before 1st June, 2016) | TDS Rate (after 1st June, 2016) |
|---|---|---|
| Threshold limit | Rs. 5,000 | Rs. 15,000 |
| TDS on commission or brokerage (If PAN is furnished) | 10% | 5% |
| TDS on commission or brokerage (If PAN is not furnished) | 20% | 20% |
NOTE:
– Budget 2024 – This rate is reduced to 2% with effect from 1st October 2024.
– No surcharge or education cess is levied on payment to resident.
Illustration
Illustration 1: Ram is a broker and he has received the following payments during the FY 2022-2023
| Particulars | Amount |
|---|---|
| Advisory fees | Rs. 5,000 |
| Brokerage fees | Rs. 7,000 |
The aggregate amount of payments received during the financial year does not exceed Rs. 15,000. Therefore, no TDS will be deducted under Section 194H.
Illustration 2: Lakshman is an agent on Amizon and he has received the Rs. 27,000 in form of commission during the FY 2022-2023
Since the aggregate value exceeds Rs. 15,000, TDS will be deducted on the whole amount of Rs. 27,000/-
Illustration 3: Richard is a NRI and he has received Rs. 20,000 as commission income.
No TDS shall be deducted under Section 194H since Richard is a NRI and Section 194H is inapplicable to non-resident persons
Due date to deposit TDS
| Period | Due Date |
|---|---|
| April – February | Within 7 days from the end of the month in which the tax is deducted. |
| March | On or before 30th April |
Due Dates to File TDS Returns under Section 194H
| Quarter | Quarter Period | Last date of filing |
|---|---|---|
| Q1 | 1st April – 30th June | 31st July |
| Q2 | 1st July – 30th September | 31st October |
| Q3 | 1st October – 31st December | 31st January |
| Q4 | 1st January – 31st March | 31st May |
Consequences of not deducting TDS or deducting but not depositing it
Levy of Interest : If the specified person does not deduct TDS or deducts TDS but does not deposit it to the government on time, then interest @1.5% is required to be paid on such amount.
Disallowance of expenses : Further, the person is not eligible to claim the deduction of expenses from Profits and Gains from Business & Profession income, if TDS is not deducted on time. The amount of disallowed expenses shall be 30% of payment
However, if TDS is deposited in subsequent years, then expense will be allowed in the year of payment of TDS.
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