BLOG on Income Tax Management for - AY 2022-23 & 2023-24

TDS on Commission or Brokerage [Section 194H]

“Commission or Brokerage” for the purpose of Section 194H
Who is liable to Deduct TDS under Section 194H
When TDS under Section 194H is to be Deducted
TDS Rate under Section 194H for the Financial Year 2018-19 and 2019-20
Where No TDS is to be Deducted under Section 194E
Where TDS under Section 194H is either Not to be Deducted or to be Deducted at Lower Rate [Section 197]:

1. “Commission or Brokerage” for the purpose of Section 194H

“Commission or brokerage” for the purpose of section 194H includes any payment which satisfies the following conditions—

Condition-1	Payment is received or receivable by a person acting on behalf of the payer.
Condition-2	The aforesaid payment is received for services rendered (not being professional services) or for any service in the course of buying/selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.
Condition-3	The above payment may be received or receivable directly or indirectly.
Condition-4	The above payment is not insurance commission covered by section 194D.

TDS on Commission or Brokerage (Section 194H)

Other Points -

The following proposition should be noted –

Turnover Commission -

The work of receipt of tax payments and issue of refunds is conducted by the Bank authorised for such purposes by the Reserve Bank of India (RBI). As a compensation for the work so conducted, the Central Government pays to the Banks, through RBI, commission termed as “Turnover Commission”. Tax would not be required to be deducted by RBI on the amount of Turnover Commission paid or credited by it—

No TDS in the case of amount payable by BSNL/MTNL to PCOs -

Tax is not deductible in respect of commission or brokerage paid or payable by BSNL/MTNL to their PCO franchises.

Commision recieved by Travel Agents liable to TDS U/s 194H-

Commission and supplementary commission received by the travel agents from Airlines are liable to tax deduction at source under section 194H—

SIM Cards -

Discount given by a mobile cellular operator to its distributors in the course of selling of SIM cards and recharge coupons under pre-paid scheme of getting a connection is, in substance, a payment for services to be rendered by distributors to the assessee and covered by section 194H—

Advertisement Commission paid by Doordarshan to its Agents-

Advertisement commission paid by Doordarshan to its agents is subject to tax deduction at source under section 194H—

Discount given to Stamp Vendors -

No TDS is applicable on discount given to Stamp Vendors for purchasing stamps in bulk quantity –

Payment made by Television Channels/Newspapers to Advertising Agency -

No TDS is attracted on payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements. It is trade discount but not commission –

2. Who is liable to Deduct TDS under Section 194H

Any person, (other than individual or a Hindu undivided family) who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, deduct income-tax thereon.

However, individuals and HUF who were covered under section 44AB(a) and (b) in the preceding previous year, are also required to deduct tax at source.

3. When TDS under Section 194H is to be Deducted

It will be deducted at the time of credit of such income to the account of the payee or to any account, whether called suspense account or by any other name or 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.

4. TDS Rate under Section 194H for the Financial Year 2018-19 and 2019-20

The rate of TDS shall be 5%.

Notes:

No surcharge, education cess or SHEC shall be added to the above rates. Hence, 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.

5. Where No TDS is to be Deducted under Section 194E

(1) No deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to the payee, does not exceed Rs.15,000.

(2) No deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office franchisees.

6. Where TDS under Section 194H is either Not to be Deducted or to be Deducted at Lower Rate [Section 197]:

The person receiving the commission or brokerage may make an application in new Form 13 to the concerned Assessing Officer and obtain such certificate, as may be appropriate, authorizing the person responsible for making such payment to deduct tax at nil rate or at lower rate. The certificate will be given by the Assessing Officer if he is satisfied that it is justified to do so.

As per section 206AA(4), no certificate under section 197 for deduction of tax at Nil rate or lower rate shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.