A person is accountable to pay a resident a commission that is not insurance and falls under section 194D or brokerage is required for deduction of TDS. However, when it comes to individual HUF and payee, only the ones responsible for audit under sections 44AB (a) and (b) owe to the receipts and gross revenues that cross the given limits.
The limit is INR 1 Cr/ INR 25 lacs. Also, the tax deduction may vary based on one case to another.
TDS on Commission (Sec 194H)
Section 194H under the Income Tax Act, 1961, is in-general associated with the income tax that is turned levy on the income earned through brokerage or commission. HUF (Hindu Undivided Family) and Persona are obligated to this act.
- TDS on commission needs to be deducted by every entity, including both individuals and members of HUF.
- Any member and individual of HUF need to pay TDS only if they are receiving their tax audit that is conducted under section 44AB. As per Section 44 B, in case the receipts or turnover exceed Rs 25 lacs to 1 Crore (as per the Income Tax Slab), they need to pay their tax audit.
- Also, according to Section 194H, the person who is deducting TDS needs to deposit TDS before the arrival of the due date to the government. The person will have to deposit the TAN No. of the person deducting the TDS along with the PAN Card No. of the individual whose TDS has already been deducted.
- To calculate TDS on brokerage and commission, any additional educational cess or surcharge cannot be deducted. The TDS is deducted at an applicable area that includes if any service charge is there.
When Can TDS be Removed Under Section 194H?
Income Tax Act’s Section 194H needs the deductor to withhold TDS under the given below circumstances, whatever takes place earlier:
- During the time of credit of the payment of brokerage or commission to the payee’s account.
- During the time of payment of brokerage or commission to the payee’s account or any other account or through DD, Cheque, or cash.
Nil Tax at Deducted Source or Lower TDS Rate:
As per section 197 of the Income Tax Act, a certificate can be claimed by the individual from the department of Income Tax for zero or a minimal rate of TDS deduction in case the TDS deducted is more than the overall liability of the Income Tax in the FY (Financial Year).
For claiming nil tax or lower TDS at deducted source, Form 13 needs to be filed manually or through an online portal, along with the Assessing Officer (TDS). In case AO is satisfied, he or she will be processing the application, and then a certificate will be used by him or her to the deductor, who in turn can make use of the certificate for justifying the TDS’ lower deduction.
Additionally, you will have to submit the given below documents with the application form for Nil or Low TDS deduction:
- Income Tax copies along with the acknowledgment and enclosures for the three previous financial years must be submitted.
- Copies of the assessment order for the last three fiscal years need to be given.
- Copies of the financial statement along with the audit report in a case for the past three financial years will be given.
- The projected revenue for the present financial year needs to be submitted.
- Income statement for the last three fiscal years and also the income projection for the present financial year will have to be provided.
- Copy of the PAN card the individual has to be submitted.
- The tax deduction Account Number of every party responsible for paying you needs to be provided.
- E-TDS return for the last two financial years must be submitted.
- The estimated income in the fiscal year is to be offered.
- In case any previous TDS default is there, it needs to be submitted as well.
What is Section 194H in the Indian Income Tax Act?
The Section 194H under the act of Indian Income Tax is everything that is discussed below:
- Section 194H puts its focus on income tax that is levied on any sort of income that is earned through commission or brokerage by a person who is accountable to pay a resident.
- Persona and Hindu Undivided Family, covered under the Section 44AB, must subtract TDS as well.
- The insurance commission that is denoted under section 194H is not entailed by Section 194H.
- In case a suck kind of income is deposited in any payee’s account or in any other mentioned account, TDS under Section 194H should be deducted.
- It does not matter if it is known by suspense account or by something other at the disbursement time; it can be paid as DD, cheque, or cash.
More Factors on TDS on Commission:
As per the section 194H, the term ‘commission’ or ‘brokerage’ is composed of any kind of payment that has been received or is yet to be received, indirectly or directly, by an individual who is taking actions on behalf of another person for the following:
- For any kind of services availed (not being a specialized service) or
- For any kind of services via selling or purchasing of things or
- With regard to any kind of transaction that links any asset, the prized article is not under any security.
Circulars and Resultant Case Laws:
Some of the circulars till now and the resultant case laws are as follows:
- Circular number 619 on 4 December 1991: In case the brokerage or commission is being upheld by the agent while the sale deliberation is dispatched, the principal must credit the TDS on commission money like that.
- CIT vs Ahmedabad Stamp Vendors Association (2012), (Supreme Court): The rebate that is offered to the sellers for purchasing in massive quantities is not any brokerage or any commission. It is because the nature of the transaction is that of the sale-purchase transaction and not the principal agent. Thus, no TDS under section 194H is applicable in such instances.
- Jagran Prakashan Ltd vs CIT (2012): The trade concession that is allowed by the newspaper’s publisher to the advertising agency is not in the similar league of commission. Thus, no TDS, according to section 194H, can be applied here.
- The payees believe that the Presumptive Taxation is applicable to the returns from the commission. However, this is not right as per the principles.
Exemptions under Section 194H:
Under the given below circumstances, under section 194H, TDS is unapplicable:
- The brokerage or commission paid to the payee does not cross Rs 15,000 in an FY.
- If the brokerage or commission is paid to the public, call the franchise by the BSN or MTNL.
- In case the commission is paid by the employer to the employees, the to-be-applied TDS is deducted according to the provisions of Section 192.
- No TDS is deducted in case a person has already got Nil TDS or Lower TDS rate certificate from the necessary authority.
- The commission that is received from the insurance income is not liable for the deduction of TDS as well.
- Additionally, for any kind of service tax payment, TDS cannot be applied under section 194H.
TDS Deduction Rate:
TDS bears a deduction rate. Follow the steps given below to understand in detail:
- For the Financial Year 2020 to 2021, the deduction rate of TDS is 5%.
- No extra education cess or surcharge needs to be added to the rates.
- If the PAN is unfurnished, TDS will be deducted at 20%.
- The TDS rate on commission or brokerage is 10%. This includes 5% from fiscal 2016-2017.
- Assessee is applicable to the evaluating officer for no TDS or TDS at a lower rate as mentioned under Section 197 of the Income Tax Act, 1961.
The deduction time of TDS are stated below:
- TDS needs to be subtracted during disbursement or during credit to the account of any such recipient, whatever takes place.
- In case the sum is credited to the suspense account or any kind of account in any name, it is credited to the payee’s account, and TDS is needed to be subtracted at such credit’s time.
The Time Span on Depositing TDS:
In case the tax is subtracted from April to February, the same needs to be deposited by the deductor before or on the 7th of the upcoming month. For example, in case the tax is subtracted on 25th April, then it needs to be deposited before 7th May.
Significant Factor to Remember Under the Income Tax Act of Section 194H:
Some of the significant points that need to be followed in Section 194H are discussed below:
- If GST is being levied on brokerage or commission, and the TDS is subtracted on the brokerage or commission or brokerage’s primary value exclusive of the GST element.
- TDS is being levied on the overall amount in case the income is received from brokerage or commission exceeding the exemption limit of Rs 15,000.
- In case the agent retains the commission amount while settling payments. TDS is deposited to the government still.
- TDS on brokerage or commission is deposited on the exact day in case the deduction is on behalf of or by the Indian Government.
The TDS provisions play an integral part in compliance with the Indian Income Tax law. It serves as a regular income source for the government and will act as a reporting mechanism for the incomes earned by different sections of people, and this further makes the tax administration simpler. It is recommended that a correct control mechanism is created by every business entity to make sure that the TDS provisions comply suitably.