1. What is section 194H of Income Tax Act?

Section 194H focuses on income tax levied on any income by means of brokerage or commission, by any individual who is accountable for paying any amount pertaining to the said nature to a resident, if such income exceeds Rs15000. Therefore, any person who is responsible for paying any amount in nature of commission or brokerage to a resident shall deduct tax on behalf of the other and remit the same to the government on his behalf.

2. What is commission?

Commission or Brokerage includes any payment made in relation to purchase or sale of goods or services (except professional services) or any asset, valuable article or thing (except securities) to a person acting on behalf of the other as an intermediary in relation to the above mentioned transactions.

3. When to deduct TDS on commission?

• At the time of credit of such income to the account of the payee or to any other account (whether it is referred to as suspense account or by any other name) or

• At the time of payment of such income in cash, or by the issue of a cheque or draft or by any other mode, whichever is earlier.

4. Time limit for depositing TDS

Generally, the tax deducted will be required to be deposited within one week from the end of the month in which such TDS has been deducted. Say, for the month of January the due date is 7th February, just as for the month of March, the TDS will be required to be deposited by 30th April.

5. What is the rate of TDS on commission?

• The rate at which the TDS is required to be deducted is 5% of the gross amount of the commission paid. This rate of tax has been reduced from 10% to 5% in Budget 2016 which is applicable with effect from 01.04.2016.
  In the case where the PAN of the deductee is not available, TDS will be required to be deducted at a rate of 20%.
• Note: If the deductee has furnished an application under section 197 for deduction of tax at a lower or nil rate, then the TDS would be required to be deducted at that respective lower rate or not required to be deducted.

6. When is not required to deduct TDS u/s 194H?

 TDS is not required to be deducted in the following cases:

1. 1. TDS on Insurance commission as referred to in section 194D
   2. Commission paid by the employer to an employee will be covered by section 192
   3. Commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees
   4. Brokerage or Commission paid to Underwriters in relation to public issue of securities
   5. Brokerage on stock exchange transactions of securities
   6. Bank guarantee Commission
   7. Cash management service charges
   8. Commodity warehousing service charges

7. Who is exempted from deducting TDS and what is the threshold limit for 194H?

• There are certain conditions, as discussed below, where the deduction of TDS is exempted on commission or brokerage.
• If the amount paid or payable as commission or brokerage during the financial year does not exceed Rs 15,000
• Individual or a Hindu undivided family who is not applicable to Tax Audit during the immediately preceding financial year

8. What is to be done after deducting and depositing TDS?
   1. All deductors must ensure the proper and timely issue of certificates to the concerned deductee. The certificate must be issued on the following dates:

9. Consequences of non-deduction or failure to pay the tax deducted

• Disallowance of Expenditure In case the person fails to deduct the amount of TDS to be deducted or has deducted the TDS but fails to pay the same, 30% of the expenditure will be disallowed u/s 40(a)  for the purpose of computing income under the head “Profits and Gains from Business / Profession”
• Prosecution As per section 276B of the Income Tax Act, if any assessee who has deducted the tax at source and fails to pay the same within the time limit to the government, he may be punishable with rigorous imprisonment for a term
  a) Which shall not be less than 3 months
  b) But, it may extend to 7 years; including the fine.