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TDS on Commission or Brokerage – Relevant Provisions

The word commission has several meanings, but in general terms commission means a fee that a person or business receives or pays out when a business transaction is completed. Commission income is an amount earned in exchange for transacting a sale of a product or providing a service. Commission income is usually a percentage of sale proceeds, but it could also be a flat rate depending on the sales commission agreement between the owner of a product and the seller of that product.

A brokerage is a fee charged by a broker to execute transactions or provide specialized services. Brokers charge brokerage fees for services such as purchases, sales, consultations, negotiations, and delivery. There are many types of brokerage fees charged in various industries such as financial services, insurance, real estate, and delivery services. Brokerage fees, also known as broker fees, are based on a percentage of the transaction, as a flat fee, or a hybrid of the two. Brokerage fees vary according to the industry and type of broker.In this article we will cover TDS sections applicable to payment of ‘commission or brokerage’. 

TDS On Commission or Brokerage [Section 194H]:

Meaning of commission / brokerage:

• According to Explanation (i) to Section 194H of the Income Tax Act, 1961 the term ‘Commission or Brokerage’ includes any payment received / receivable (directly or indirectly) by a person acting on behalf of another person for:
• Services rendered (except the professional services); or
• Any service in the course of buying / selling of goods; or
• In relation to any transaction to any asset, thing or valuable article (except securities).

Nature of Incomecovered:

• Provisions of Section 194H are applicable on any income earned by way of commission or brokerage. However, it should be noted that this section is not applicable on the Insurance Commission.

Liability to Deduct TDS:

• Every entity is liable to deduct TDS while making payment to any person if such payment is in the nature of commission or brokerage.
• In case the payer is an Individual or HUF, they are required to deduct TDS only if they are liable to tax audit u/s 44AB.

Rate of TDS:

• The TDS shall be deducted at the rate of 5% under this section. No additional surcharge, Education Cess or SHE Cess is to be added to the TDS rate.
• If PAN is not furnished by the recipient, TDS shall be deducted at the rate of 20%.

Threshold Limit under this Section:

• No TDS shall be deducted under this section of the aggregate amount of commission or brokerage in a financial year does not exceed Rs. 15,000.

Cases where no TDS to be deducted under this section:

The amount of payment is within threshold limit under this section: The aggregate amount of commission or brokerage credited / paid to the account of the payee doesn’t exceed INR 15,000.
Lower/Nil Deduction requested by the recipient: The payee has applied for and obtained a certificate from the Assessing Officer under section 197 for NIL or lower deduction of TDS.
The Commission or brokerage payable by the Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL) to their public call office franchisees.

Nature of Commission / Brokerage not covered under this section:

• TDS on Insurance Commission is not deductible under section 194H, the same is specifically covered under section 194D.
• TDS on commission paid by the employer to its employee is deductible as per provisions of section 192 and not under section 194H.
• The Bank Guarantee Commission.
• The Cash Management Service Charges.
• Commission on Sale of Lottery tickets as they are covered u/s 194G.

Other Important Points:

• If GST is levied on the commission or brokerage, the TDS shall be deducted only from the basic amount and not from the amount of GST.
• If the amount of commission or brokerage exceeds the threshold limit of Rs. 15,000 at any time during the year, the TDS should be deducted on the total commission or brokerage paid in the entire financial year.
• If the agent retains the commission amount while remitting the sale consideration, TDS on such amount of commission is to be deposited by the principal.

Commission on Sale of Lottery Tickets [Section 194G]:

Nature of Income:

TDS Section 194G is applicable on any income earned by a person in the form of commission, remuneration, or prize on lottery tickets. Such income must have been derived from a lottery ticket irrespective of the title of income.

Liability to Deduct TDS:

As per section 194G, any person who pays an income by way of commission or remuneration or prize to a person who sells lottery tickets (also stock, distribute or purchase) is required to deduct TDS.

Rate of TDS Deduction:

The TDS shall be deducted at the rate of 5% under this section. No additional surcharge, Education Cess or SHE Cess is to be added to the TDS rate.
If PAN is not furnished by the recipient, TDS shall be deducted at the rate of 20%.

Threshold Limit for TDS Deduction u/s 194G:

No TDS shall be deducted under this section of the aggregate amount of commission or brokerage in a financial year does not exceed Rs. 15,000.

Request for Nil / Lower TDS Deduction:

If the payee can furnish a valid certificate received from the Assessing Officer for Nil/Lower deduction of TDS, the deductor would deduct TDS at such nil/lower rate as may be prescribed.
However, as per section 206AA(4)no such certificate can be obtained if the recipient does not have a valid PAN.

Time of Deduction of TDS:

• The Deductor who is liable to deduct TDS under provisions of this sectionis required to deduct TDS within earlier of the following dates:
• At the time of credit of income to the account of the payee; or
• At the time of payment in cash, cheque, draft, or by any other mode.
• For this purpose credit to ― Expense Payable account‖ or Suspense account‖ or any other name shall be deemed to be a credit of such income to the account of the payee.
• Payment may be made in cash or by issue of a cheque or draft of by any other mode.

Time Limit to deposit TDS:

TDS deducted is required to be deposited to the credit of the Government within given below timeline to avoid interest:

TDS Return Filing Due Date:

Due Date of Issuance of TDS Certificate:

Interest on Late Filing:

Notes:

• The above interest should be paid before filing of TDS return. The deductor can make the payment of interest on such late payment of TDS before filing TDS returns or demand raised by TRACES.
• The interest paid u/s 201A is not allowed as an expense under the Income Tax provisions.
• Interest to be calculated on a monthly basis and not on the number of days i.e. part of a month is considered as a full month.

Penalty for late filing of TDS Returns:

• Section 234E:
• The deductor will be liable to pay by way of fees Rs.200 per day till the failure to pay TDS continues.
• However, the penalty should not exceed the amount of TDS for which the statement was required to be filed.

• Section 271H:
  • Also, a penalty from Rs.10,000 to Rs.1 lakh is leviable under Section 271H if a company provides incorrect information or fails to submit the returns within the specified due date.
  • This penalty will be charged in addition to the penalty under Section 234E.
  • No penalty under Section 271H will be charged in case of delay in filing the TDS/TCS return if the following conditions are satisfied:

1. The tax deducted/collected at source is paid to the credit of the government.
2. Late filing fees and interest (if any) is paid to the credit of the government.
3. The TDS/TCS return is filed before the expiry of a period of one year from the due date specified in this behalf.