Section 194H Of Income Tax Act: TDS On Commission And Brokerage

Income Tax

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

Also Read – Income Tax slabs

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