TDS under section 194H is applicable to the person paying commission or brokerage to a resident exceeding Rs. 5, 000 per annum. Tax at Source has to be deducted at the rate of 10%, at the time of credit or payment whichever is earlier. Section 194H is not applicable to insurance commission as referred in section 194D of income tax act.
Budget 2016-17 proposed to reduce the rate of deduction at the rate of 10% to 5% and increase the limit from Rs 5000 to Rs 15000.
Section 194H will not be applicable to the person who is an individual or HUF if such person’s sales, gross receipt or turnover exceeds Rs. 1 Crore in the case of business or Rs. 25 lakhs in the case of profession (i.e. they are not liable for income tax audit under section 44AB of income tax act).
Definition of Commission or brokerage for the purpose of TDS under section 194H
Commission or brokerage has been defined to include followings;
- Any payment received or receivable for services rendered by a person on behalf of another person or
- Any payment received or receivable for services in the course of buying or selling of goods or
- Any payment received or receivable in relation to any transaction relating to any asset, valuable article or things not being securities.
Such payment can be received directly or indirectly by the person.
Deposit of TDS
TDS has to be deposited with the government by the person who has deducted it under section 194H. While depositing such amount the person need to provide his own TAN number and the PAN number of the person from whom TDS has been deducted.
Time limit of depositing Tax Deducted at Source
In case the deduction is by or on behalf of the government then TDS deducted has to be deposited on the same day.
In other cases, Tax at Source has to be deposited within one week from the end of the month in which such TDS has been deducted from the source of income. If the amount is credited or paid on the last day of the financial year i.e. 31st march then TDS has to be deposited within 2 months from then end of the financial year in which it is credited or paid.
The assessing officer on your application may allow deducting TDS in special cases on quarterly basis i.e. 15th July, 15th October, 15th January and 15th April.
TDS at a lower rate
Under section 297, the payee (i.e. the person receiving such insurance commission) can apply in form no: 13 to the assessing officer for lower deduction of TDS from his insurance commission. If the assessing officer is satisfied then a certificate will be issued to the assessee for lower deduction of income tax. Such certificate has to be produced to the concern person deducting TDS under section 194D for lower deduction and the person deducting Tax at Source has to deduct it at such lower rate and for the period as stated in the certificate.
Situations where Section 194H is not applicable
- Payment of commission or brokerage by BSNL or MTNL to their public call office franchisees.
- Payment of Insurance commission (Section 194D will be applicable as specifically mentioned there)
- Commission paid or payable by RBI to the bank for collection of tax on behalf of government.
- Commission paid by employer to the employee (Tax at Source will be deducted as per section 192).