Section 194H: TDS on Commission & Brokerage

Section 194H: TDS on Commission & Brokerage

What is Section 194H

1. Section 194H deals with TDS deduction on the payment of commission or brokerage.
2. It mandates tax deduction by the person (other than individual/HUF) responsible for paying commission or brokerage to resident persons at the rate of 5% when the amount exceeds Rs.15000 in a year

Commission and brokerage mean

To understand section 194H, you have to understand the basics of commission and brokerage. Any payment that is received or receivable, directly or indirectly by any person acting on behalf of another person is said to be commission or brokerage. This even includes any transaction done for valuable assets or articles.

Rate of Tax Deduction at Source under section 194H

• The rate of tax deduction at source is fixed at the rate of 5%
• If in case the PAN is not quoted by the deductee, the rate of tax deduction at source (TDS) will be charged at 20%.

Cases in which TDS is not deductible

1. There are various conditions in which the Tax deduction at source is not applicable under section 194H. They are:
2. If the amount or aggregate amount of any income from brokerage or commission does not exceed the limit of RS. 15,000 during the payment in the financial year, no deduction will be made under this section.
3. The Individual can apply to the assessing officer for deduction at NIL rate or lower rate tax under section 197.

Exclusions of TDS on commission or brokerage

There are few exceptions of these sorts of commissions or brokerage on which no tax deduction at the source is done under this section. They are:

1. Commission paid to insurance or loan underwriters
2. Any brokerage paid for public issue of securities
3. Any sort of brokerage paid on the transactions of securities that are listed in the stock exchange
4. Payment done by RBI to banking companies
5. Payment as income tax refund
6. Payments towards Financial Corporations under central finance bill
7. Any payments towards LIC policies or other investments in any co-operative societies
8. Payment of direct taxes
9. Income from interest from savings bank account, recurring deposits, Indra Vikas Patra, NSC or
10. Kisan Vikas Patra
11. Interest from NRE account
12. Any payment in respect of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees
13. Any income from a public or private institution which is notified as NIL TDs organization.
14. Any income from interest for the compensation in respect to Motor Vehicles Claims Tribunal

Inclusions of TDS on commission or brokerage

Tax deduction at source on brokerage or commission includes various services. These are as follows:

1. Any service rendered except professional services
2. Any service rendered in the process of selling or buying of goods
3. Any service that is given during any transaction related to any asset or any valuable thing excluding securities