This guide is applicable for Financial year 2017-18
Persons required to deduct tax under this section
Any person who is responsible for paying to a resident, commission or brokerage is required to deduct TDS. If commission is payable in respect of insurance commission under section 194D then such commission is not covered under this section.
However in case of Individuals and HUF only those who are liable to audit under section 44AB (a),(b) due to turnover/receipts exceeding the specified limits i.e 1 crore/25 lakh as the case may be are liable to deduct tax on any type of payment including brokerage or commission.
If such commission or brokerage is payable to a non-resident then TDS is to be deductible under section 195 and not under this section.
Rate of TDS and Threshold limits under section 194H
|From 1st June 2016||Before 1st June 2016|
|Threshold Limit||Rs. 15,000||Rs. 5,000|
|If PAN is furnished||5%||10%|
|If PAN is not furnished||20%||20%|
No surcharge or education cess is levied on payment to resident.
Assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197.
If the commission/brokerage amount exceeds the threshold limit, then TDS is to be deducted on whole amount paid or payable for that financial year and NOT ONLY on the amount exceeding the threshold limit.
Time of Deduction
TDS is required to be deducted at the time of payment or credit to the account of such payee whichever is earlier.
If such amount is credited to suspense account or account of any name, it is considered as credited to account of payee and TDS is required to be deducted at time of such credit.
TDS not required to be deducted in following cases
- TDS is required to be deducted only when the aggregate of the amounts of such income credited or paid or likely to be paid or credited during the financial year exceeds Rs. 15,000.
- TDS is not required on brokerage or commission 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 – TDS from Salary and not under this section.
- TDS on Insurance Commission shall not be deducted under this section but under Section 194D.
- Bank guarantee commission.
- Depository charges on maintenance of DEMAT accounts.
- Cash management service charges.
- Charges for warehousing services for commodities.
- Underwriting service charges.
- Clearing charges.
- Commission on Debit or credit card for transactions between the merchant establishment and acquirer bank.
Meaning of Commission/Brokerage
Commission or brokerage includes any payment received or receivable (not being commission or brokerage under section 194D) directly or indirectly by a person acting on behalf of another person
- for services rendered (not being 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.
Therefore property agents who works as an agent in buy/sell or rent of property is also covered under this section.
The Section clarifies that the services received shall not include professional services. The professional services within its ambit includes legal, profession of accountancy, technical, interior design services etc.
Commision or Brokerage includes any payment receivable or received, directly or indirectly or by a person acting on behalf of another person.
TDS not Deductible on Service Tax Amount
If service tax is applicable and levied then the TDS is required to be deducted only from the amount payable as brokerage or commission and not deductible on service tax amount. Circular No. 1/2014. Although no separate notification is issued for GST but the concept remains same, so no TDS on GST amount is to be deducted.
Circulars and Case Laws
If the commission is retained by the agent while remitting the sale consideration, TDS on such commission amount is to be deposited by the principal. Circular no. 619 dated 4 Dec, 1991.
Discount given to stamp vendors for purchasing in bulk quantity is not commission as the nature of transaction is of sale-purchase transaction and not of principal agent. Therefore no TDS under sectin 194H is applicable. CIT vs Ahmedabad Stamp Vendors Association (2012)(SC)
Trade discount given by publisher of newspaper to advertising agency is not in nature of commission and thus no TDS under section 194H is applicable. Jagran Prakashan Ltd vs CIT (2012)
Commission paid by Mother Dairy to concessionaires 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. *  18 taxmann.com 49 (Delhi)
Where assessee laboratory was rendering services of testing samples to collection centres/franchisees, TDS under section 194H not required in respect of discount offered by assessee to said collection centres/ franchisees. SRL Ranbaxy Ltd. v. ACIT 16 taxmann.com 343 (Delhi).