Scope of Section 194H of Income Tax Act:
- Tax deducted under section 194H on if there is a credit of incomes related to brokerage or commission to the account of the resident payee.
- Even if these incomes are accounted in suspense accounts or by another name at the time of payment that is made in cash or by cheque or draft, tax deduction at source (TDS) is done under section 194H.
- Section 194H does not include insurance commission referred to in section 194D
Who is required to Deduct TDS?
Individuals and Hindu Undivided Family who were covered under section 44AB are also required to deduct TDS. From FY 2020-21, individual and HUF whose turnover from business is above Rs 1 crore or gross recipts from profession are above Rs 50 lakh are also required to deduct TDS.
Time for Deduction of TDS u/s 194H:
- 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 (Or)
- 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.
Rate of TDS u/s 194H:
- The rate of TDS u/s 194H is 5%. 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.
Cases in which TDS is not deductible:
There are various conditions in which the Tax deduction at source is not applicable under section 194H. They are:
- 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.
TDS at a Lower Rate:
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.
- The deductor has to validate the PAN of the individual with the submission of 197 certificates.
- The certificate submitted should be valid for rate, financial year, PAN, sections and so on for which it is filed.
- The threshold limit that is specified in the certificate should not exceed in any quarters.
- The certificate number should be correctly quoted.
After validating all these actions,the assessing officer can agree to the application of the deductee.
Some of the details that are required to be given at the time of filing this application of lower or NIL rate of Tax Deduction at Source are:
- Name and address of the assessee
- PAN details
- Purpose for which payment has been received
- Details of the income in the last three years
- Projected income in present financial year
- Any tax payment done in the last three years
- Tax payment done for present financial year
Exemptions Specified under section 194H:
Some cases are there in which the Tax Deduction at Source(TDS) is exempted under section 194H. They are:
- If the brokerage or commission does not exceed Rs. 5000 in a financial year.
- If the deductee obtained NIL or lower Tax Deduction at Source(TDS) certificate by the assessing officer.
- Income made in terms of brokerage or commission by BSNL or MTNL towards public call franchisees.
- If any company pays commission to their workers, TDS will be applicable under section 192 and not under section 194H.
- Any insurance commission under section 192, (this falls under section 194D)
- Income from service tax payment.
Important Notes
Commission or brokerage:
Commission or brokerage includes any payment
- Received or receivable,
- Directly or indirectly, OR
- by a person acting on behalf of another person
TDS on commission or brokerage:
TDS on commission or brokerage includes,
- for services rendered (not being professional services), or
- for any services in the course of buying or selling of goods, or
- in relation to any transaction relating to any asset, valuable article or thing, except securities
Due date of TDS deposit and Filing of TDS returns:
The Deductor is liable to deposit TDS with the Government with following dates:
| Particulars | Due date of Deposite |
|---|---|
| April-February | 7th of Next following next Month |
| March month | 30th April |
The Deductor is liable to File TDS Returns with the Government with following dates:
| Quarter | Due Date for Return |
|---|---|
| April to June | 31st of July |
| July to September | 31st of October |
| October to December | 31st of October |
| January to March | 31st of May |
