What Is Section 194H?

Section 194H applies to income tax deducted on commission or brokerage revenue by any person responsible for paying to a resident.

Individuals and Hindu Undivided Families who are covered by section 44AB must additionally deduct TDS. Individuals and HUFs with a business turnover of more than Rs 1 crore or gross income from a profession of more than Rs 50 lakh would be obliged to deduct TDS beginning in FY 2020-21.

The insurance commission referred to in section 194D is not included in section 194H.

When Must TDS Under Section 194H Be Deducted?

TDS On Commission And Brokerage

TDS under Section 194H will be deducted when such income is credited to the payees or any other account.

Whether referred to as a suspense account or by any other name at the time of payment, of such revenue in cash, by the issuance of a check or draught, or by any other manner, whichever comes first.

What Do You Mean By Commission And Brokerage

TDS on commission or brokerage includes any payment

  • Received or receivable, 
  • Directly or indirectly, OR 
  • By a person acting on somebody else’s behalf

TDS on commission or brokerage consists of the following, 

  • For services rendered (not being professional services), or 
  • For any services rendered in the course of purchasing or selling products, or 
  • For any transaction involving any asset, valuable article, or thing, other than securities.

Commission/Brokerage Exemptions

People believe that Presumptive Taxation applies to commission income, however, this is not exactly right.

What is the TDS rate?

TDS On Commission And Brokerage

TDS is present at a rate of 5%. For transactions between 14 May 2020 and 31 March 2021, the charge is 3.75 percent. There will be no surcharge, education cess, or SHEC added to the aforesaid rates. As a result, the tax will be deducted at the source at the standard rate. If the deductee does not provide PAN, the TDS rate will be 20% in all circumstances.

Under What Conditions Is TDS u/s 194H Not Deductible?

There must be no deduction under this section if the number of aggregate amounts of such income to be credited or paid during the fiscal year does not exceed INR 15,000

The person may apply to the assessing officer under Section 197 for a tax deduction at the NIL rate or a lesser rate.

What Is The Deadline For Submitting TDS?

Taxes deducted from April to February must be deposited by the 7th of the following month. Tax deducted in March must be deposited on or before April 30th.

For example, tax deducted on April 25th must be deposited on or before May 7th, while tax deducted on March 15th must be deposited on or before April 30th.

TDS At A Lower Rate

The deductee (the person whose tax is deducted) may apply to the assessing officer under section 197 for tax deduction at the NIL rate or a lower rate.

  1. Validate the deductee’s PAN by supplying 197 certifications.
  2. The Certificate must be valid for the PAN, Section, Rate, and relevant financial year specified in the filed statement.
  3. Check that the certificate’s threshold limit has not been exceeded in previous quarters.
  4. The statement should include the correct certificate number. 3XXXAH7X is an example of a valid certificate number.

Frequently Asked Questions

Is TDS under Section 194H applied to tickets issued at a reduced price by airlines to their travel agents?

According to the decision in CIT v. Singapore Airlines Ltd., where the airlines issued tickets to its travel agents at a reduced price, the transaction between the airlines and the travel agencies was that of principal-to-principal, and the price difference was due to discount. As a result, such a transaction would not be covered by section 194H.

Is Section 194H relevant to dealer trade incentives?

Ans. In Tube Investments of India Ltd. v. ACIT[2009], the taxpayer was a bicycle manufacturer who provided trade incentives to dealers. The tribunal determined that if dealers sold items at the same price they purchased them from the corporation, such trade incentives amounted to a commission under section 194H.

Is TDS under Section 194H deductible on the turnover commission paid to Agency Banks by the RBI?

TDS under section 194H shall not be applicable on Turnover Commission payable by the RBI to Agency Banks, i.e. Banks authorized to conduct Government business, for performing the Central and State Governments’ general banking business on behalf of the RBI, according to Circular No. 6/2003, dated 3-9-2003.

When should you deduct TDS (at what moment) under Section 194H?

TDS under Section 194H shall be deducted at the time such income is credited to the payee’s account or any other account called by any other name, or at the time payment is made in any manner, whichever is earlier.