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                                                TDS on Commission and Brokerage Section 194H

Section 194H: Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent:

[Explanation]: This section is applicable on income tax deducted on any income arising out of by way of commission or brokerage, by any person responsible for paying to a resident.

Understanding Commission/Brokerage
As per the explanation of section 194H of the Income Tax Act, 1961; Commission on Brokerage includes any payment received/receivable (directly or indirectly) by a person acting on behalf of another person for:
i) Services rendered (exclusion of professional services); or
ii) Any service deployed in the course of buying or selling of goods; or
iii) Any transaction in consonance to an asset, thing or valuable article.

Con As per section 194H of Income Tax Act, the rate as which TDS is required to be deducted is @ 5%. There are no additional surcharge per se, however, education Cess or SHE Cess is to be added to the TDs rate of 5%. Also, if there is no PAN, the deductor would be liable to deduct TDS at the maximum marginal rate which is 20%.

Time constraints on depositing TDS
A deductor is subjected to time constraints as per the provision of the section:
Tax deducted during the month of April to February is to be deposited on or before the 7th of next month. Tax deducted in the month of March is to be deposited on or before 30th April.For instance, tax which is deducted on 20th April is to be deposited before 7th May, or tax deducted on 18th February is to be deposited before 7th March. Similarly, tax deducted on 10th March has to be deposited on or before 30th April.

Exceptions to TDS on Commission/Brokerage
There are certain exemptions or exceptions on TDS on commission/brokerage wherein there is no required for deduction of TDS, they are as follows:
a) The amount paid or payable during the financial year does not exceed Rs. 1500.
c) If the commission is being paid by an employer to his employees; under such circumstances the commission would be liable for deduction under section 192 of the Income Tax Act.
d) It is pertinent to note that, TDS on Insurance Commission shall not be deducted under this section, the same is covered under section 194D of the Income Tax Act.
e) If the payee has applied for and obtained a certificate from the Assessing Officer under section 197 for NIL or lower deduction of TDS. 

Lastly, if there is a case where there is a levy of GST on the commission or brokerage then the deductor is required to deduct TDS on the basic value of the commission or brokerage paid and not on the GST procured.


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