Section 194H of the Income Tax Act, 1961, is basically concerned with the income tax that is in turn levied on the income which has been earned by means of commission or brokerage. Persona and Hindu Undivided Family (HUF) are obligated to this.
Any individual who is accountable for paying to a resident, commission (which is not insurance), that is, commission under section 194D or brokerage is needed for TDS deduction. But in case of individual payee and HUF, only those who are responsible for auditing under section 44AB (a) and (b) owing to gross revenue and receipts that exceeds the stipulated limits, which is INR 1 Cr/ INR 25 lacs. And depending from case to case, tax deduction too varies.
What is Section 194H in the Indian Income Tax Act?
- Section 194H focuses on income tax levied on any income by means of brokerage or commission, by any individual accountable for paying to a resident.
- Persona and Hindu Undivided Family (HUF) who were covered under section 44AB are also mandated to subtract TDS.
- Section 194H does not entail insurance commission denoted in section 194H.
- When such income is deposited in the account of the payee or any other given account, TDS under Section 194H will be deducted.
- Whether it is known by the name suspense account or by something else at the time of disbursement, or it can be paid as cash, cheque or DD.
Rate of TDS
- The rate of TDS on commission or brokerage is ten percent, which includes five percent from the fiscal 2016-2017.
- There is no additional charge or education cess imposed on payment to resident.
- If PAN has not been delivered by the payee, then TDS to be deducted at the rate of 20 percent.
- Assessee can apply to evaluating officer for no TDS or TDS at lesser rate as specified under Section 197 of Income Tax Act, 1961.
Time of Deduction
- TDS has to be subtracted at the time of disbursement or credit to the account of such recipient whichever happens before.
- If this sum is credited to suspense account or account in any name, it is regarded as credited to account of payee and TDS is required to be deducted at time of such credit.
TDS not needed to be subtracted in the cases mentioned below
- There is no need for the TDS to be deducted only when the whole returns from such investment is more than INR 5000 in the year (INR 15,000 from the fiscal 2016-2017.
- TDS is not a prerequisite on brokerage or commission owed by BSNL or MTNL to their public call office franchisees.
- If the commission is granted by the establishment to its worker, then that amount is accountable to TDS under section 192, TDS from the remuneration rather than under the said section.
- TDS on Insurance Commission is not subtracted as per the points section 192, but under Section 194D.
- TDS is not deductible on Service Tax Amount. If service tax is imposed, then the TDS need to be reduced only from the money owed as brokerage or commission rather than deductible on service tax amount.
More Points on TDS on Commission
Commission or brokerage comprises any payment accepted or receivable (not being commission or brokerage under section 194D) directly or indirectly by any individual on behalf of another comprising of the following:
- for services availed (not being specialized services) or
- for any service throughout purchasing or selling of things or
- with regard to any transaction linking any asset, prized article not being securities.
Circulars so far and resultant Case Laws
- Circular number 619 dated 4 Dec, 1991: If the commission or brokerage is maintained by the agent while dispatching the sale deliberation, TDS on such commission money is to be credited by the principal.
- CIT vs Ahmedabad Stamp Vendors Association (2012), (Supreme Court): Rebate given to stamp sellers for buying in large quantity is not commission or even brokerage. This is because the transactional nature is that of sale-purchase transaction rather than the principal agent. Hence no TDS under section 194H can be applied here.
- Jagran Prakashan Ltd vs CIT (2012): Trade concession allowed by publisher of newspaper to advertising agency is not in the same league of commission and therefore no TDS as per the section 194H can be applicable here.
- Payees are of the belief that Presumptive Taxation can be applied to returns from commission but it is not right in principle.