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2020

Important FAQs regarding TDS on Income from Commission or Brokerage

Important FAQs regarding TDS on Income from Commission or Brokerage

The provisions of section 194H of the Income Tax Act, 1961 governs the TDS deductible on commission or brokerage income. As per the provisions of section 194H of the Income Tax Act, 1961, any person making payment of any income in respect of commission/brokerage is required to deduct TDS. In case of Individual / Hindu Undivided Family (HUF) provisions of section 194H applies only if the total sales / gross receipts or turnover exceeds the monetary limit specified under section 44AB (a) or (b). From FY 2020-21, individual and HUF whose turnover from the business is above Rs 1 crore or gross receipts from the profession are above Rs 50 lakh are also required to deduct TDS. Section 194H does not include an insurance commission referred to in section 194D.

Bird’s Eye View

Section

194H

TDS to be deducted on

Commission or Brokerage

TDS Rate

5% (3.75% for transactions from 14 May 2020 until 31 March 2021)

TDS Deposit Date

7th of Next Month in which TDS is deducted.

Threshold Limit

Rs. 15,000

 

Let us discuss some important FAQs on Section 194H.

 

Q1. What is the meaning of Commission / Brokerage?

  • Explanation (i) to Section 194H of the Income Tax Act, 1961 contains the meaning of the term ‘Commission or Brokerage’.

  • As per the said Explanation, 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).

 

Commission or brokerage includes any payment: 

    • Received or Receivable,

    • Directly or Indirectly, OR

    • By a person acting on behalf of another person.

 

Q2. When does TDS under Section 194H need to be deducted? 

  • TDS under Section 194H will be deducted at the time of credit of such income to the account of the payee or to any other account.

  • Whether called suspense account or by any other name at the time of payment, of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.

 

Q3. What is the rate of TDS?

  • The rate of TDS is 5%. The rate is 3.75% for transactions from 14 May 2020 until 31 March 2021.

  • No surcharge, education cess or SHEC shall be added to the above rates. Hence, the tax will be deducted at source at the basic rate.

  • The rate of TDS will be 20% in all cases if PAN is NOT quoted by the deductee.

 

Q4. What is the time limit on depositing TDS?

  • Tax Deducted during the month of April to February is to be deposited on or before the 7th of next month. Tax Deducted in the month of March is to be deposited on or before 30th April.

  • For example, tax deducted on 25 April is to be deposited on or before 7th May and tax deducted on 15 march is to be deposited on or before 30 April.

 

Q5. Can TDS be deducted at a Lower Rate?

  • Yes, the deductee (the person whose tax is deducted) can make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.

  • Actions to be taken by deductor:

  • Validate the PAN of the deductee submitting 197 certificates.

  • The Certificate should be valid for the PAN, Section, Rate and relevant financial year which has been mentioned in the statement filed.

  • Verify that the threshold limit for the certificate has not been exceeded in previous quarters.

  • Correct certificate number should be quoted in the statement. Example of Correct Certificate Number – 3XXXAH7X.

 

Q6. What is the threshold limit for TDS Deduction under this Section?

  • No deduction shall be made under this section in a case where the amount or the aggregate amounts of such income to be credited or paid during the financial year does not exceed INR 15,000.

  • The Person can make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.

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