Table of Contents
1. What is Section 194H
Section 194H of the Income Tax Act, 1961 contains provisions relating to TDS on commission/ brokerage payments (other than insurance commission) made to residents.
2. Who should deduct TDS under section 194H?
- Individuals/HUF whose turnover/gross receipts exceed Rs. 1 crore or Rs. 50 lakhs respectively during the financial year immediately preceding the financial year in which such commission is paid
- Any other person responsible for paying commission or brokerage (other than insurance commission) to residents.
3. What is the maximum limit upto which no tax needs to be deducted under this section?
No tax needs to be deducted if the commission or brokerage paid or credited during the financial year does not exceed Rs. 15,000.
4. What is the rate at which tax is deducted under this section?
- Tax is deducted at the rate of 5% on the commission or brokerage payments.
- If the payee does not furnish his/her PAN, tax will be deducted at the rate of 20%
5. When should tax be deducted under section 194H?
Tax needs to be deducted at the time of credit of commission/ broekerage to the account of the payee or at the time of payment whichever is earlier.
6. What do you mean by commission or brokerage for the purpose of section 194H?
Commission or brokerage includes,
- any payment received for any services rendered (other than professional services) or
- for any services in the course of buying or selling of goods or
- in relation to any transaction relating to any asset, valuable article or thing, not being securities.
7. What are the circumstances under which TDS will not be deducted under section 194H?
No tax is required to be deducted in the following cases:
- When the aggregate amount of commission does not exceed Rs.15,000 during the financial year.
- When brokerage or commission is payable by BSNL or MTNL to their public call office franchisees.
- If commission is paid by employer to its employee, then such commission is liable to TDS under Sec 192 and not under this section.
- When such commission is an insurance commission (section 194D will apply).
- Where the person has applied for and obtained a certificate from the Assessing Officer under section 197 for NIL or lower deduction of TDS.
8. Important judicial pronouncements relating to TDS under section 194H:
- Commission paid by Mother Dairy to people who sell milk of assessee from booths owned by assessee not liable to TDS under section 194H as principle-agent relationship is missing – CIT v. Mother Dairy India Ltd. [2012]
- Free issue of goods or early payment discount given to distributors are not regarded as commission and hence not liable to deduct tax under this section – Foster’s India (P) Ltd. v ITO (2009) 29 SOT 32 (Pune)(URO).
9. Whether discounts are treated as commission and taxed under this section?
Discounts can be regarded as commission depending upon the nature of the transaction, there are many judicial pronouncements in this regards, a few are listed below,
- Discounts given by labs to collection centers – Not regarded as commission – SRL Ranbaxy Ltd. v. ACIT[2011]
- Discounts given by telecom providers to sellers of recharge vouchers or topup packs – regarded as commission – Vodafone Essar Cellular Ltd. v. ACIT[2010]
- Discounts given by airline company to travel agents – Not regarded as commission – CIT v. Singapore Airlines Ltd. [2009]
- Discounts granted by treasury to licensed stamp vendors – Not regarded as commission or brokerage – Kerela State Stamp Vendors Association v. Office of the Accountant General [2006]