Section 194H : 2022 Guide On Section 194H Of Income Tax Act

Do you have to pay taxes for brokerages and commissions?

According to Section 194H of the Income Tax Act of India, you have to. This Act makes sure that those earning through unregulated means pay their fair share of income taxes.

Let’s find more about Section 194H in the following sections.

Section 194H: What is it?

Section 194H contains guidelines about tax deductions on the amount paid as brokerage or commission. Entities making a payment as commission or brokerage to a resident have to make a tax deduction at a 5% rate.

This amount has to exceed Rs. 15,000 in one financial year, and individuals/HUFs are not responsible for deducting taxes. However, individuals and Hindu Undivided Families liable to tax audit under Section 44AB must make tax deductions under Section 194H. TAN and PAN of both the involved parties are necessary for 194H TDS deduction under this section.

Commission or Brokerage with Reference to Section 194H

To have a clear idea about Section 194H, you need to know what qualifies as a commission or brokerage. Commissions or brokerage is any amount that one receives or will receive directly or indirectly for acting on behalf of another person. This would also include payments made for valuable assets.

Tax deduction for commission or brokerages would include these services:

Any kind of services except professional services
Services that you receive during transactions related to valuable assets, apart from securities
Services that you obtain with regards to purchasing or selling of goods

However, certain commissions and brokerage charges do not qualify for tax deduction under Section 194H. These include:

Commission you pay to loan or insurance underwriters
The brokerage you pay for the transaction of securities listed on the stock exchange
Any payment that RBI makes towards different banking companies
The brokerage you pay for public issue of securities
Any amount you pay for LIC policies or any other investments towards any cooperative society
The amount earned from interest from a savings account, recurring deposit, Kisan Vikas patra, NSC or others

When to Deduct Section 194H TDS?

You can deduct tax under Section 194H when the amount gets credited to the account of a payee or some other account. Such payments are eligible for tax deduction even when paying commission in a suspense account.

Lowering TDS under Section 194H

If you are a deductee, you can apply to reduce the rate of tax deduction done on Section 194H. You need to make an application to an assessing officer to avail of tax deduction at a reduced rate. The assessing officer has to validate your PAN while you submit a certificate under Section 197.

In addition, the assessing officer will also need to verify that the threshold limit for the certificate does not exceed during any quarters. You will also need to quote the certificate accurately.

Once the assessing officer evaluates and validates all necessary information, they will approve the reduction of the TDS rate. You have to provide the following information while filing for a reduction in tax deduction rate:

Name of the assessee
Address details
PAN
The purpose for which you received the amount
Income details of the past three years
Estimated income of the current financial year
Tax payment details of the last three years and others

Rate of Tax Deduction under Section 194H

If you are making a payment of more than Rs. 15,000 in one financial year towards commission or brokerage, you can make a tax deduction of 5%. There won’t be any additional deduction in the form of education cess or surcharge.

In case of the absence of a PAN card, the TDS can be a maximum of 20%.

Also read: https://navi.com/blog/income-tax-calculator/

Final Word

If you earn money through commissions or brokerage, you must be aware of various aspects of Income Tax you are liable to pay. The above-mentioned sections will guide you through the aspects of TDS on commissions/brokerage.

Frequently Asked Questions

Q1. In which cases TDS under Section 194H is not applicable?

TDS deduction under Section 194H is not applicable under the following circumstances:
>If the total brokerage or commission, the charge does not exceed Rs. 15,000 in a financial year
>Payment in terms of commission or brokerage charges to BSNL or MTNL for public call franchisees
>Commission paid by companies to its workers
>Income obtained from service tax payment

Q2. What are the guidelines for deposition of TDS under Section 194H?

TDS deduction that takes place between April to February in a financial year has to be submitted either on or before the 7th of the next month. For tax deduction in March, the deposition should be done before April 30.
For instance, if you make a tax deduction on June 20, you have to deposit it on or before July 7.

Q3. What happens if you do not deduct TDS under Section 194H?

If you do not deduct the necessary TDS under Section 194H, you have to pay an interest at 1% per month from the date at which TDS was to be actually deducted to the date of deduction.

Q4. What are some of the important guidelines about Section 194H?

Here are some of the important guidelines of Section 194H:
>Tax deduction will take place only at the government-approved rate
>Tax deducted has to be submitted to the government within the time limit
>You need to provide the TAN and PAN while depositing the tax

Q5. Is tax deduction under Section 194H applicable on GST?

No, tax deduction does not take place on any service tax paid with the commission or brokerage charge. It is applicable only to the amount one pays in the form of commission.

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