Section 194H of the Income Tax Act, 1961 deals with the Tax Deducted at Source (TDS) on commission or brokerage payments. This section is applicable when a person (deductor) makes a payment of commission or brokerage to another person (deductee). The person making the payment is thus responsible for deducting TDS and depositing it with the government.
Who Needs to Deduct TDS under Section 194H?
TDS under Section 194H applies when:
- A person (individual, company, firm, etc.) pays a commission or brokerage to another person.
- The amount of commission or brokerage is Rs. 15,000 or more in a financial year.
- The payment is made in cash or kind, but TDS needs to be deducted on the actual payment or credit, whichever happens first.
The rate of TDS under Section 194H is 5% for residents. The TDS rate may differ, if the payment is not made to a resident. It is also essential to remember that the threshold limit for deduction of TDS is Rs. 15,000 in a financial year. TDS must be deducted if the total commission or brokerage paid during the year exceeds this amount.
TDS Return for Section 194H:
You need to file the TDS return after the TDS is deducted . The TDS return provides details of the amount of tax deducted, the PAN of the deductee, and other relevant information. This return is filed quarterly and is submitted online through the official Income Tax Department portal.
The TDS return for Section 194H is filed in Form 26Q, and the due dates for filing are:
- 30th June (for Q1)
- 30th September (for Q2)
- 31st December (for Q3)
- 31st May (for Q4)
TDS is deducted at the time of payment or credit, whichever is earlier. It also applies to various types of commission or brokerage, including payments made for sales, marketing, and promotion services.
Example:
Let’s consider a simple example. Suppose a company (ABC Pvt Ltd) pays ₹50,000 as commission to a marketing agent. The applicable TDS rate is 5%.
Calculation of TDS:
- Commission Paid: ₹50,000
- TDS Rate: 5%
- TDS Deducted: ₹50,000 × 5% = ₹2,500
Thus, ABC Pvt Ltd will deduct ₹2,500 as TDS and pay the remaining ₹47,500 to the marketing agent.
The company will then deposit the TDS amount with the government and file a quarterly TDS return (Form 26Q) detailing the TDS deducted.
Conclusion:
Section 194H plays a crucial role in ensuring tax compliance for commission and brokerage payments. It simplifies the collection of tax at source and also ensures that the government receives its due share of tax. If you are a business making such payments, it’s important to understand the provisions of Section 194H, deduct the tax, deposit it on time, and thus file the TDS returns regularly.
– Ketaki Dandekar (Team Arthology)
Read more about Section 194H here – https://cleartax.in/s/194h