Section 194H of the Income Tax Act mandates a tax deduction at source (TDS) on commission or brokerage payments. Commission or brokerage refers to earnings that an individual or agent receives in exchange for facilitating the sale or purchase of goods, services, or other valuable assets. Notably, this income source falls under the ambit of TDS regulations, with certain criteria and exemptions outlined in the law.
This guide covers the essential points regarding Section 194H, including eligibility, deduction rates, and exemptions, to streamline the compliance process for individuals and entities responsible for TDS.
Section 194H of the Income Tax Act requires entities to deduct TDS on commission or brokerage income at a specified rate. Under this section:
This section, however, does not apply to insurance commissions, which fall under Section 194D.
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Entities and individuals that pay commission or brokerage are obligated to deduct TDS when:
Note: Section 194H excludes HUFs and individuals unless they meet the above audit requirements. Additionally, education cess and surcharges do not apply to TDS deductions under this section.
Under Section 194H, the TDS rate on commission and brokerage is set at 5%. However:
Staying informed about these rates and limits is essential to ensure compliance.
TDS under Section 194H must be deducted when the payment or credit of the commission occurs, which includes:
For TDS deducted between April to February, it must be deposited by the 7th of the following month. For example, if TDS is deducted on April 15th, it must be deposited by May 7th.
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Taxpayers can apply for a lower TDS deduction rate or nil deduction certificate under Section 197 of the Income Tax Act if they expect their income tax liability to be lower than the deducted TDS amount.
Form 13 is used to request this certificate, submitted to the Assessing Officer.
Documents required include:
Upon approval, the Assessing Officer issues the certificate allowing for a lower or nil TDS deduction on commission and brokerage income.
Section 194H outlines certain exemptions where TDS on commission or brokerage is not applicable. These include:
These exemptions help clarify when TDS on commission and brokerage is not required, ensuring smooth and compliant financial transactions.
Entities responsible for TDS deductions on commission and brokerage should remember:
Section 194H of the Income Tax Act is crucial for ensuring accurate tax deductions on commission and brokerage income. By understanding TDS rates, exemptions, and the necessary filing dates, both deductors and deductees can maintain compliance and avoid unnecessary penalties. Knowing the basics and staying updated on changes in TDS laws can significantly streamline tax responsibilities for entities involved in commission or brokerage payments.
The TDS rate for commission and brokerage under Section 194H is 5%. If the deductee does not provide their PAN, the TDS rate increases to 20%.
Only individuals or HUFs who are subject to tax audit under Section 44AB are required to deduct TDS on commission and brokerage under Section 194H.
No, insurance commissions fall under Section 194D of the Income Tax Act, not Section 194H.
For TDS deductions from April to February, TDS should be deposited by the 7th of the following month.
Yes, taxpayers can apply for a lower or nil TDS certificate by submitting Form 13 to the Assessing Officer, subject to verification and approval.
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