Tax Deducted at Source (TDS) plays a vital role in India’s taxation framework, ensuring tax is collected at the time of payment. For businesses and individuals dealing in commission and brokerage, Section 194H of the Income Tax Act is particularly important. It mandates deduction of TDS before payments are made, improving transparency and preventing tax evasion.
Key Highlights
- Section 194H governs TDS on commission and brokerage payments to residents.
- The standard TDS rate is 10%, subject to exemptions and amendments.
- Threshold limit: ₹15,000 per financial year — below which no TDS is deducted.
- Non-compliance can lead to heavy penalties and interest.
- Proper documentation and timely filing are essential for compliance.
Understanding Section 194H
Section 194H requires any person (individual or business) responsible for paying commission or brokerage to deduct TDS before releasing payment to a resident.
Applicability:
- Applies to payments for services such as agency work, sales commission, brokerage in real estate, and financial transactions.
- Does not apply to commission paid to non-residents (covered under different provisions).
Eligibility & Exemptions
| Criteria | Details |
|---|---|
| Payment Type | Commission or brokerage services |
| Payee | Resident of India |
| Threshold | ₹15,000 per year |
| TDS Rate | 10% (can vary in specific cases) |
| Exemptions | Payments to certain government bodies, entities notified by CBDT, and cases below threshold |
How to Calculate TDS Under Section 194H
Formula:TDS Amount = Commission/Brokerage × TDS Rate
Example:
| Description | Amount (₹) | Rate (%) | TDS (₹) |
|---|---|---|---|
| Commission Payment | 10,000 | 10 | 1,000 |
| Brokerage Payment | 15,000 | 10 | 1,500 |
| Above Threshold | 50,000 | 10 | 5,000 |
Payments below ₹15,000 in a financial year are exempt.
Compliance & Filing
Deadlines:
| Task | Due Date |
|---|---|
| TDS Payment to Govt. | 7th of next month |
| TDS Return Filing | Last day of month after quarter |
Required Documents:
- Invoices for commission/brokerage
- Contracts specifying commission terms
- Payment receipts and bank statements
Why Compliance Matters
Legal Consequences of Non-Compliance:
- Penalty equal to TDS amount not deducted/paid.
- Interest on delayed payment.
- Possible tax audits and reputational damage.
Benefits of Compliance:
- Builds credibility with tax authorities.
- Smoothens audits and financial management.
- Reduces risk of disputes and penalties.
Common Misconceptions
- Myth: All commission payments require TDS.
Fact: Only applicable if payments exceed threshold and to residents. - Myth: Non-resident payments fall under Section 194H.
Fact: Non-resident payments are governed by separate provisions.
Recent Updates to Section 194H
The government has introduced amendments impacting TDS rates, documentation, and reporting procedures for commission and brokerage. Businesses must update accounting systems and monitor CBDT notifications to ensure compliance.
Conclusion
Section 194H is a critical compliance requirement for businesses involved in commission and brokerage transactions. Staying informed on thresholds, rates, and filing deadlines not only avoids penalties but also enhances business credibility.
FAQs
1. What is TDS on commission and brokerage?
A 10% tax deducted at source on payments for commission/brokerage to residents, under Section 194H.
2. Who deducts TDS?
The payer—individual or business—making the payment.
3. What is the exemption limit?
₹15,000 per financial year.
4. How is TDS calculated?
Multiply the payment amount by the applicable TDS rate (usually 10%).
5. What happens if I don’t deduct TDS?
Penalties, interest, and potential legal action.
6. How often must returns be filed?
Quarterly, through the government’s online portal.