Section 194H – TDS on Commission

Section 194H is applicable on payment made against payment of commission or brokerage to another taxpayer. A default in deduction and/or payment of TDS to the credit of the Central Government attracts interest, penalty, and prosecution. Hence, you must know the applicability of TDS and avoid such hassle.

What is Section 194H?

Any taxpayer who is responsible for paying any sum to a resident an income in the form of:

1. Commission (excluding insurance commission)
2. Brokerage

Must deduct TDS on the amount being paid or to be paid by the taxpayer if the value is more than Rs 15,000.

When Should you Deduct TDS Under Section 194H?

The deductor must deduct TDS on the following occasion, whichever is earlier

1. at the time of credit of such commission or brokerage to the payee’s account or any other account
2. at the time of credit of paying such commission or brokerage to the payee in the form of cash, cheque, demand draft, or any other payment mode
3. If the income is credited to any account whether called ‘Suspense Account’ or any other account then such credit will be considered as a credit to the payee’s account. Hence, the provisions of Section 194H will be applicable.

TDS Rate Under Section 194H

1. TDS rate under section 194H is 5%
2. For the period 14 May 2020 until 31 March 2021 the TDS rate is 3.75%
3. If the payee does not quote the PAN number to the deductor, then the TDS rate will be 20%
4. The deductor must not add any surcharge, education cess, or SHEC to the TDS rate.
5. The TDS rate is the basic rate.

What Is The Meaning Of Commission and Brokerage?

The commission or brokerage includes:

• Any payment received or receivable, directly or indirectly
• By one person who is acting on the behalf of another person
• Against any services 
• Such services are in the course of buying or selling goods
• Such services are related to any transaction relating to any asset, valuable article, or thing
• However, such services must not be in relation to any transaction involving securities.

When Does TDS Under Section 194H Need to be Deducted?

1. The amount paid or payable as a commission or brokerage income during the entire financial year is less than Rs 15,000
2. Section 194H is not applicable to an individual taxpayer and a Hindu Undivided Family (HUF)
3. However, section 194H is applicable to an individual or HUF who is covered under presumptive taxation under section 44AB. If such an individual or HUF is covered under section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid then section 194H is applicable. Furthermore, presumptive taxation is applicable if total sales, gross receipts or turnover from business exceeds Rs 1 crore and from profession exceeds Rs 50 lakhs 
4. Section 194H does not include insurance commission. You must deduct TDS on insurance commission as per section 194D
5. No TDS on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.

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