What Is Section 194H?

Under section 194H, income tax is levied on any income earned by an individual by means of commission or brokerage. In other words, as per section 194H of income tax act, an individual is responsible for paying tax on any income earned by him in the form of commission or brokerage. Individuals as well as Hindu undivided family (HUF) (covered under Section 44-AB) also required to deduct TDS on any commission or brokerage.

What Do You Mean By Commision & Brokerage?

Commission or brokerage includes any payment received directly or indirectly by a person acting on behalf of another person. TDS on commission & brokerage includes –

  • Any services in the course of buying & selling of goods
  • Any services rendered excluding professional services. Professional services include legal services, technical services, accountancy services, interior design services etc.
  • Any transaction related to an asset, valuable article or thing excluding securities.

Section 194H – TDS on Commission or Brokerage

Also Read: Section-194h TDS on Commission Income Rates

When Does TDS U/S 194H Needs To Be Deducted?

TDS under section 194H needs to be deducted in the following cases –

  • Under section 194H, TDS needs to be deducted at the time when income credited in the account of an individual or any other given account.
  • When an income is known by the name of “Suspense account” or some other account at the time of disbursement through any mode of payment i.e. cash, cheque or DD or any other mode.

Rate Of TDS under Section 194H

With effect from 01.04.2016, the rate of TDS on commission has been reduced from 10% to 5%. As per the current rate, TDS is to be deducted as 5% of the gross amount of the commission paid. For PAN users, TDS is 5% but in the case if the PAN is not available, TDS will be deducted at the rate of 20%.

If you want your TDS to be deducted at a lower or nil rate, you have to write an application u/s 197 for TDS deduction to the accessing officer.

Rate Of TDS & Threhold Limits Under Section 194H

From 1st April 2016 Before 1st April 2016
Threshold limit Rs.15000 Rs.5000
If PAN is furnished 5% 10%
If PAN is not furnished 20% 20%

Note –

  • No surcharge or education cess is levied on tax payments.
  • Taxpayer can apply to the accessing officer for no TDS or TDS at lower rate.

Under What Circumstances TDS U/S 194H Is Not Deductible?

Under section 194H of the income tax act, TDS is not deductible in the following circumstances –

  1. TDS is not deducted in case, if the amount of income credited or paid does not exceed Rs.15000 during the financial year.
  2. Under section 197, a person can write an application to the accessing officer for deduction of tax at nil or lower rate.
  3. If individual or Hindu undivided family (HUF) not applicable to tax audit during the immediately preceding year.

When Is It Not Required To Deduct TDS U/S 194H?

TDS is not required to be deducted in the following cases –

  1. TDS on insurance commission
  2. Commission paid by the employer to an employee will be covered under section 192.
  3. Commission or brokerage payable by Mahanagar telephone Nigam limited or Bharat Sanchar Nigam limited to their public call office franchisees.
  4. Brokerage on securities of stock exchange transactions
  5. In relation to public issue of securities, brokerage or commission paid to underwriters.
  6. Bank guarantee commission.
  7. Cash management service charges
  8. Commodity warehousing service charges

What Is The Time Limit Of Depositing TDS?

Time limit for depositing TDS is as follows –

  1. Tax deducted from April to February should be deposited on or before the 7th of the next month.
  2. Tax deducted in the month of March should be deposited on or before 30th April.

For ex – If your tax has been deducted on 20th April, then it should be deposited on or before 7th may but if your tax deducted on 20th March, then it should be deposited on or before 30th April.

Consequences Of Failing To Pay The TAX

You may have to face the following consequences of not paying the tax –

  • Disallowance of expenditure – If an individual fails to deduct the TDS amount or deducts it but fails to pay the same, 30% of the expenditure will be disallowed u/s 40(a)(ia) for aim of computing income under the head “Profit & gains from business/profession”.
  • Prosecution – As per section 276B of the income tax act, if any individual deducted the tax but fails to pay the same within the time limit prescribed by the government, he may get severe punishment for a term –
    • Not to be less than 3 months.
    • May extend to 7 years including the fine.

What Is To Be Done After Deducting & Depositing TDS?

After deducting & depositing TDS, certificates are issued to the deductee’s on the following dates given below –

Quarter Time limit for depositing TDS
April-June 30th July
July-September 30th October
October-December 30th January
January-March 30th May

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