Section 194H – TDS on Commission and Brokerage
5paisa Research Team
Last Updated: 22 Mar, 2023 04:58 PM IST
Content
- Introduction
- What is Section 194H?
- When does TDS Under Section 194H Needs to be Deducted?
- What do you Mean by Brokerage and Commission?
- Exceptions to Commission/Brokerage
- What is the Rate of TDS?
- Under What Circumstances TDS u/s 194H is not Deductible?
- What is the Time Limit on TDS for Depositing?
- TDS at a Lower Rate
- What are Some Important Points to Consider in Section 194H?
- What are the Exemptions Under Section 194H?
- Conclusion
Introduction
Section 194H of Income Tax Act 1961 deals with the tax deduction at source (TDS) on commission or brokerage. It is a form of indirect tax that the government collects to raise revenue and reduce its tax burden. The TDS provisions are applicable to individuals, companies, firms, HUFs, and other entities who pay commission or brokerage to a non-resident. Thus, section 194H provides compliance requirements for an assessee to fulfill its statutory obligation of deducting and depositing TDS on commission or brokerage. In this article, we will discuss section 194H of income tax act and the compliance requirements with respect to TDS on commission or brokerage.
What is Section 194H?
Section 194H of Income Tax Act 1961 provides for tax deduction at source (TDS) on commission or brokerage. This can be charged by an individual, company, firm, HUF, or any other entity that pays commission or brokerage to a non-resident. The TDS rate under Section 194H is 10% of the commission or brokerage being paid.
When does TDS Under Section 194H Needs to be Deducted?
TDS under 194H is to be deducted when any sum is paid or credited to a non-resident by way of commission or brokerage. In addition, payments made in excess of Rs. 30,000 for professional services will also attract the provisions of this section.
What do you Mean by Brokerage and Commission?
The commission is a form of remuneration or fee paid by an employer to employees or agents for services rendered in selling goods or services. It is generally calculated as a percentage of the amount realized from the sale. On the other hand, brokerage refers to an arrangement where a third party provides services to facilitate transactions between two parties. Brokerage services are usually provided in exchange for a fee, which is calculated as a percentage of the value of the transaction.
Exceptions to Commission/Brokerage
There are a few exceptions to the provisions of section 194H, including payments made for services such as consultancy, advisory, or technical services that do not fall under this section. In addition, payments made by a Government department or public authority in pursuance of any order issued by it in terms of the project tendered by it are also exempt from the provisions of section 194H.
What is the Rate of TDS?
As mentioned, the TDS rate under section 194H is 10% of the commission or brokerage amount paid. This rate applies irrespective of whether it is paid to a resident or non-resident and is subject to certain other conditions.
Under What Circumstances TDS u/s 194H is not Deductible?
To determine the circumstances under which TDS u/s 194H is not deductible, it is important to understand that this section only applies in certain specific situations. Payments made for services such as consultancy, advisory, or technical services are excluded from the scope of this section.
What is the Time Limit on TDS for Depositing?
According to section 194H of the TDS, all deductions must be credited to the Central Government within one day of the month's conclusion. If you fail to meet the deadline, your business will likely incur hefty interest and penalty fees. To avoid such repercussions, ensure that you deposit your tax deduction promptly!
TDS at a Lower Rate
In certain cases, it is possible to avail the benefit of a lower rate of TDS under Section 194H. To be eligible for this, you must have obtained a tax deduction or collection certificate from the income-tax authorities in accordance with the applicable provisions and deposited the same within one day from the end of the month. In such a deduction or collection is made. In such cases, the rate of TDS shall be lower than 10%.
What are Some Important Points to Consider in Section 194H?
● Payments made for professional services in excess of Rs. 30,000 will also attract the provisions of this section.
● Certain payments may qualify for a lower rate of TDS, depending on whether or not you have obtained a tax deduction or collection certificate from the income tax authorities.
What are the Exemptions Under Section 194H?
Exemptions from section 194H are granted to payments for certain services, such as consultancy, advisory, or technical services. Payments made by a Government Department or public authority in pursuance of an order issued under any project tendered by it are also exempt from the provisions of this section. In addition, payments made for services rendered outside India are also not subject to TDS.
Conclusion
In conclusion, Section 194H of the Income Tax Act is a section under which TDS should be deducted whenever commission or brokerage payments are made to any person at the rate of 10%. This rate may be lower in certain cases depending on whether you have obtained a tax deduction or collection certificate from the income tax authorities.
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Frequently Asked Questions
No, Section 194H does not apply to tickets issued by airlines to their travel agents at a concessional price. Payments made for services such as consultancy, advisory, or technical services are excluded from the scope of this section.
No, Section 194H does not apply to trade incentives given to dealers. Payments made for services such as consultancy, advisory, or technical services are excluded from the scope of this section.
Without a doubt, the tax deduction at source (TDS) mandated under Section 194H applies to turnover commissions payable by the Reserve Bank of India to Agency Banks. The rate of TDS shall be lower than 10%, depending on whether you have obtained a tax deduction or collection certificate from the income-tax authorities in accordance with the applicable provisions.
TDS should be deducted from payments made for commission or brokerage at 10%, except in cases where a tax deduction or collection certificate has been obtained from the income-tax authorities.
An individual making the payment is liable for the deduction of TDS under Section 194H on payments made for commission or brokerage in excess of Rs. 30,000. Tax is to be deducted at 10%, except in cases where a tax deduction or collection certificate has been obtained from the income-tax authorities.
TDS is to be deducted 10% from payments made for commission or brokerage in excess of Rs. 30,000 under Section 194H. This rate may be lower in certain cases depending on whether you have obtained a tax deduction or collection certificate from the income tax authorities.
Tax Deductible Source (TDS) has set a threshold of Rs. 30,000 per annum for commission and brokerage payments in the Financial Year 2020-21. Any payment that surpasses this amount will be subject to a TDS deduction at a 10% rate as stated under Section 194H of Income Tax Act unless you have obtained a tax deduction or collection certificate.
According to Section 194H, failure to deposit TDS before the deadline could induce a monetary penalty and interest. This may also result in prosecution under Section 276B of the Income Tax Act.
If TDS is not deducted from rent, the payer may be liable to pay interest and penalty for non-compliance with Section 194H of the Income Tax Act. In such cases, it is advised that you obtain a tax deduction or collection certificate from the income tax authorities.
Income earned from commission or brokerage is taxable under the head's income from other sources. Therefore, ITR-1 (Sahaj) should be filed for income received under Section 194H.
Income earned from commission or brokerage is taxable under the head's income from other sources. Therefore, ITR-1 (Sahaj) should be filed for income received under Section 194H and your salary income.
ITR-1 (Sahaj) should be filled for 2 incomes - commission under Section 194H and salary income. Income earned from commission or brokerage is taxable under the head's income from other sources.
Yes, expenses incurred to earn income from commission or brokerage can be claimed as a deduction against the total taxable income while filing your ITR. Nevertheless, these deductions must strictly comply with the relevant sections of the Income Tax Act.