Section 194H TDS: Understanding Tax Deduction on Brokerage & Commission

Last Updated : March 14, 2023, 1:28 p.m.

Section 194H mentions the provisions framed for TDS on Commission and Brokerage. You are eligible for a tax reduction under Section 194H TDS if you pay any kind of brokerage and commission. Nonetheless, the 194H section exempts the commission earned through insurance sales. Tax Deduction at Source is the subtracted tax amount that an employer or an entity receives when they make a payment to someone. The provisions of 194H of the Income Tax Act of 1961 govern the tax-deducted source deductible on brokerage and commission income. The guide gives a few basic details about tax deductions at source on commission and brokerage under the 194h TDS section.

What is Section 194H?

Section 194H TDS of the Income Tax Act of 1961 deals with the tax deduction at source reduction on brokerage and commission payment. It applies to any commission or brokerage payment that a person pays to another. The person who makes the payment through a commission is bound to subtract the tax deduction at source and submit it to the Government.

To understand the 194H TDS section, it is necessary to understand the meaning of brokerage and commission. A payment you receive from a person who is giving the payment on behalf of someone else is called commission or brokerage. A transaction made on assets and articles based on the market price is included in commission or brokerage.

In simple words, Section 194H is for the income tax deducted on an income paid through commission or brokerage and excludes the insurance commission mentioned in Section 194D.

Inclusions of Tax Deducted at Source Depending on Commission or Brokerage

TDS, depending on brokerage and commission, include a few services. A few of those services are as follows:

• Any service excluding services rendered professionally
• Any service included in purchasing and selling products
• Any service rendered during a transaction related to an asset or liability which does not exclude securities.

Exemptions of Tax Deducted at Source Based on Brokerage or Commission

There are some exemptions based on brokerage and commission on which there is no tax deduction under Section 194H. Some of the exemptions are as follows:

• Income Tax Refund payment
• Insurance or loan underwriters’ commission
• Direct taxes payment
• Income from private or public institutions
• Interest from Non-Resident External account
• Income from interest gained through a savings account, recurring deposits, etc.
• The payment that the Reserve Bank of India makes to banking firms.
• A brokerage paid on the stock exchange listed security transaction
• Payments made concerning the Life Insurance Corporation of India policies and other investments in other cooperative societies
• Payments concerning brokerage or commission that the BSNL or the MTNL makes to its franchise offices.

When is There A Tax Deducted at Source Deduction under the 194H section?

Under the Income Tax Act of 196, when there is an income credit concerning commission and brokerage to an account, there will be a tax deduction. Whether the income credit is done in a suspense account or the account has a different name at the payment time, which takes place in a cheque, cash, or draft, tax is deducted according to the conditions mentioned in Section 194H.

TDS Rate under 194H Section

According to the Income Tax Act, the TDS rate is fixed at five percent. From May 14, 2020, to March 31, 2021, the tax deducted at the source rate was 3.75%, at deducted rate according to the relief measures that the Finance Minister announced because of the COVID-19 pandemic. If the deductee did not quote the Permanent Account Number, the TDS rate can be charged at twenty percent. The prescribed Tax Deducted at Source rate includes every tax, and you do not need to add health and education cess independently.

Significant Aspects Under Section 194H

A few significant aspects which are essential to take into account are as follows:

• TDS can be deducted at the rate the Government has fixed in the yearly budget.
• Under the 194H section, TDS is to be submitted to the Government.
• The credentials of the Permanent Account Number and the Tax Collection and Deduction Account Number are to be submitted at the time of depositing TDS.

Condition Under Which TDS is not Deductible

There are a few cases under which TDS does not apply. Some of those conditions under Section 194H are as follows:

• If the exact or the aggregate amount from an income through brokerage or commission does not go beyond Rs. 15000 limit.
• Anyone can file an application to the assessing officer for reduction at no rate or a low tax rate under Section 197.

Deposition of TDS

The deducted tax amount from April to February will be deposited prior to the 7th of the upcoming month. In the case of depositing the deducted tax amount in March, it is to be deposited on April 30.

You can look at the following examples:

• If your tax is subtracted on April 20, you can deposit the subtracted tax prior to or on May 7.
• If your tax is subtracted on 20th March, you can deposit your deducted tax amount on or prior to April 30.

Exclusions Under the 194H Section

A few exclusions under the 194H section are as follows:

• If the commission or the brokerage does not go beyond the limit of Rs. 50000 in that particular, fiscal year.
• Profits earned from paying service tax.
• Under Section 192, tax deducted at source is applied if an employer makes a commission payment to its workers.
• Insurance commission that comes under Section 192

Conclusion

To summarise, you can earn income from commission and brokerage, and you are bound to pay the TDS or Tax Deduction at Source under the Income Tax Act of 1961. Every provision relating to Tax Deduction at Source comes under Section 194H. Nonetheless, some exceptions on brokerage and commission, like commission on insurance sales, etc., are excluded from 195h TDS. Under Section 194H of the Tax Deducted at Source, tax is reduced when the payment procedure for brokerage or commission is completed. The Tax Deducted at Source reduction has multiple exemptions and inclusions depending on what kind of commission is paid and received.