TDS on Commission and Brokerage (Excluding Insurance Commission) Section 194H

Introduction:

Section 194H of the Income Tax Act deals with Tax Deducted at Source (TDS) on commission or brokerage payments, excluding insurance commission, made to resident individuals and entities. In this article, we discuss about the person liable to deduct the tax, threshold limit, rate of deduction of tax and timing etc.
Meaning of Commission or Brokerage:-

Person liable to Deduct tax:

TDS on commission or brokerage as per this provision is required to be deducted by the following entities:

• Any person, other than an individual or Hindu Undivided Family (HUF).
• Individual or HUF whose total sales, gross receipts, or turnover from business or profession exceed ₹1 crore (for business) or ₹50 lakh (for profession) during the financial year immediately preceding the year in which such payment is made.

Threshold Limit:

No TDS is required if the aggregate commission or brokerage payments credited or paid to the payee during the financial year do not exceed ₹15,000.

Timing of TDS Deduction:

TDS must be deducted at the time of making the payment or crediting the payee, whichever is earlier.

Rate of TDS:

As per this section, TDS is required to be deducted at a rate of 5%. In case of absence of PAN of the deductee, TDS needs to be deducted at a higher rate as per section 206AA.

Exemption or Relaxation:

Recipients can apply to the Assessing Officer in Form No. 13 to obtain a certificate authorizing the payer to deduct tax at a lower rate or not deduct any tax, as per Section 197.

Retained Commissions:

If the consignee/agent retains commission or brokerage at the time of remitting the sale consideration, the consignor/principal is responsible for deducting and depositing the tax to the government, on the amount of such retained commission, as per Circular No. 619.

Other Points:

Commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (excluding professional services) or for any services related to the buying or selling of goods or transactions involving assets, valuable articles, or items other than securities.

To ensure compliance with tax regulations effectively, understanding these provisions is essential for entities involved in making such payments. It is advisable to seek professional help where complications are involved.

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