Section 194H discusses the implication of taxes on income generated via commission or brokerage by any individual accountable for paying a resident. Individuals & HUF who come under the ambit of Section 44BB is also liable to deduct TDS. From the financial year 2020-21, individual and Hindu undivided families whose annual revenue of the business is more than Rs 1 crore or gross receipt from professional chores are above Rs 50 lakhs are liable for TDS deduction. Section 194H does not encompass insurance commission as mentioned in section 194D. The write-up will briefly explain the applicability of TDS on commission & brokerage.
What is TDS?
Tax deduction at source, widely known as TDS, is a means of accumulating tax on income, dividends, or asset sales by mandating the deductor to deduct tax due before paying the balance amount to the deductee (any the tax to the revenue authority). The Central Board for Direct Taxes (CBDT) is the one who regulates it. It has a great significance while conducting tax auditing. Assessee is also mandated to file a return to CBDT on a quarterly basis. Returns reflect the TDS deducted and routed to the government during the quarter to which it refers. As per the prevailing Act, the rate of TDS on commission and brokerage has been capped at 5%.
Read our article:How to File TDS Return Online?
When is a taxpayer liable to deduct TDS as per Section 194H?
TDS deduction under Section 194H will be made at the time of credit of income into the payee’s account or to any other account.
Whether recognized as suspense account or by any other name during payment, of such income in cash or by the issuance of the cheque or draft or via any other mode, whichever is earlier.
Commission and Brokerage u/s 194H
TDS on commission or brokerage refers to any payment
- received or receivable,
- directly or indirectly, OR
- By an individual representing another person
TDS imposed on commission brokerage includes,
For services facilitated (excluding professional services), or
- For any services related to the trading of goods or
- In connection with any transaction related to the valuable article, asset, or thing, except securities
- Exceptions to brokerage/commission
- There is a general misconception among the taxpayers that Presumptive Taxation is levied on income generated via commission.
An outlook TDS rate
As mentioned earlier, the government has mandated the imposition of 5% of TDS on commission and brokerage. However, in the Covid era from May 2020 until March 31 2021, this rate was slashed down to 3.75%, with no inclusion of surcharge, education cess or SHEC. Presently, the authority has mandated the TDS deduction at a standard rate. In the absence of the PAN, the deduction rate will go up to 20%.
Which scenarios negate the possibility of TDS u/s 194H?
No deduction shall be done under the aforesaid section in an event where the amount or the total amount of such income to be paid or carried during the financial year does not surpass Rs 15,000.
An individual can make an application to the assessing officer u/s 197 for deduction of tax at a reduced rate or NIL rate.
What is the Standard Timeline for Depositing TDS?
Tax deducted during the month of April to February will be deposited on or before the 7th of the subsequent month. Tax deducted in March is to be deposited on or before April 30.
For example, the TDS deduction done on April 25 is to be deposited with the concerned authority on or before May 7. Tax deducted on March 15 should find its way to the government’s account on or before April 30.
TDS at a lower rate
The payee (the individual whose tax is deducted) can make a formal request via prescribed form before the assessing officer u/s 197 for the tax deduction at NIL rates or at a lower rate.
- Authenticate the deductee’s PAN submitting certificate under section 197
- The certificate should enclose valid PAN details, Rate, Section, and relevant financial year.
- Check that the threshold limit for the said certificate has not been surpassed in the preceding quarters.
- Make sure to append a legit certificate number in the statement.
The payee concerned may seek certification for lower or NIL TDS deduction on their Form No 13. Upon receiving the certificate, the payee can submit it to the deductor to deduct the TDS at a lower or Nil rate. Deductor has to furnish this certificate detail while filing TDS return & has to authenticate before filing. 197 certificate ought to be a 10-digit alphanumeric number.
Procedure to authenticate the certificate under section 197 IT Act
- Step 1: Head over to the TRACES portal and log in to the same. The new user needs to create their account through a basic verification process.
- Step 2: Once you get access of the home page, tap on the “Statements/Payments” and then opt for “197 Certificate Validation”.
- Step 3: Enter 10-digit certification no, Payee’s PAN & select “Financial Year”.
It will manifest all the details such as certification no, financial year, TDS rate, Valid
- period, section code, amount consumed etc.
Section 194H revolves around the applicability of TDS on commission & brokerage. However, it should be noted that this section does not take the trading of securities and professional services into account. Further, this section mandates taxpayers earning more than the threshold limit cited under clause (a) or clause (b) of section 44AB during the FY promptly preceding the FY in which such commission or brokerage is credited or paid to deduct tax.
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