Bailabel Type : bailable

Description

Section 194H of the Income Tax Act, 1961 deals with the deduction of tax at source (TDS) on commission or brokerage payments made to individuals, firms, or other entities. This section ensures that TDS is deducted on payments made for services involving commission or brokerage, typically for sales, referrals, or business transactions.

Key Points of Section 194H:

1. TDS on Commission or Brokerage:

• Section 194H mandates that TDS be deducted on payments made by a person to another person for services in the form of commission or brokerage.

• The provision applies to a wide range of commission-based services, such as:

  • Sale of goods or services (e.g., sales commissions).
  • Referral fees for business transactions.
  • Brokerage paid for arranging deals or transactions, including insurance, real estate, or other industries.
  • Commission on sales made through agents.

2. TDS Rate:

• The rate of TDS under Section 194H is 5% of the commission or brokerage paid to the recipient.

• If the payee (recipient) does not provide their Permanent Account Number (PAN), the TDS rate is increased to 20% under Section 206AA.

3. Threshold Limit for TDS Deduction:

• TDS under Section 194H is applicable only when the commission or brokerage paid to the recipient exceeds Rs. 15,000 in a financial year.

• If the aggregate commission or brokerage exceeds Rs. 15,000, the payer must deduct TDS on the amount of commission or brokerage paid.

4. Exemptions from TDS:

• TDS is not applicable if:
  • The commission or brokerage payment is below the threshold of Rs. 15,000 in a financial year.
  • The payee is a government or public sector undertaking (PSU).
  • The recipient's income is below the taxable limit for the financial year, and the recipient has submitted the necessary declaration for non-deduction of TDS.

5. Timing of TDS Deduction:

• TDS under Section 194H is to be deducted at the time of payment or when the payment is credited to the recipient’s account, whichever is earlier.

6. Liability to Deduct TDS:

• The payer (i.e., the person or entity making the payment of commission or brokerage) is responsible for deducting TDS and remitting it to the Income Tax Department.

• The payer is also required to issue a TDS certificate (Form 16A) to the recipient of the commission or brokerage, which reflects the TDS deducted and remitted.

7. Issuance of TDS Certificate:

• The payer must provide the recipient with a TDS certificate (Form 16A), which includes the amount of TDS deducted and deposited with the government.

• This certificate should be issued on a quarterly basis.

8. Refund of Excess TDS:

• If the recipient of commission or brokerage has excess TDS deducted, they can file their income tax return to claim a refund of the excess tax paid.

9. Non-Residents:

• TDS on commission or brokerage paid to a non-resident may be subject to the Double Taxation Avoidance Agreement (DTAA), which could reduce the rate of TDS.

• A non-resident may need to submit a Tax Residency Certificate (TRC) to avail of the reduced TDS rate under the DTAA.

Punishment

• Failure to Deduct TDS: If the payer fails to deduct TDS on commission or brokerage payments as required under Section 194H, they may be subject to penalties under Section 271C for non-compliance.

• Failure to Deposit TDS: If TDS is deducted but not deposited with the Income Tax Department, the payer may face penalties under Section 271C and interest under Section 220 for the failure to deposit the tax.