The terms of tax deductions for commission and brokerage revenue are governed by Section 194H of the Income Tax Act. It states that when a person or a Hindu Undivided Family member pays a resident for commission or brokerage, TDS must be deducted at the time of payment, whether in cash or by check.
This rule, however, excludes any TDS deduction on profits earned from insurance purchases. TDS is usually deducted at a 10% rate; but, if the payee has not provided his PAN card, TDS is deducted at a 20% rate.
Meaning of Commission Brokerage
The term ‘commission or brokerage,’ as defined by Section 194H, includes any payment.
Obtained or to be received, directly or indirectly, by an individual working on behalf of another person. But for professional care, all services provided.
Any infrastructure that facilitates the purchase or sale of products. Concerned with some asset, item, or important article transaction. (except securities)
Commission and brokerage TDS
Both bodies, including individuals and members of the Hindu Undivided Families, must deduct TDS on commission and brokerage.
Individuals and members of Hindu Undivided Families are only required to pay TDS if their tax audit is done under Section 44AB.
Section 194H also requires the person deducting TDS to deposit the TDS with the government before the due date, along with the TAN number of the person deducting TDS and the PAN card number of the person whose TDS has been deducted.
Any extra charge or educational fees cannot be deducted from the TDS on commission and brokerage.
When is TDS deducted under Section 194H?
The deductor is required by Section 194 H of the Income Tax Act to deduct TDS in the following circumstances, whichever occurs first.
When the commission/brokerage bill is credited to the payee’s account,
When commissions/brokerage are paid to the payee account or some other account, or when payment is made by cash, check, or DD.
Tax deducted at source is nil, and the TDS rate is lower
Suppose the TDS deducted increases the total Income Tax liabilities in the financial year. In that case, an individual can demand a certificate from the Income Tax Department for zero or a lower rate of TDS deduction under Section 197 of the Income Tax Act. Form 13 must be lodged with the Assessing Officer(TDS) either online or manually to assert no tax or a lower TDS rate at the deducted source. If AO is pleased, he will process the application and provide the deductor with a certificate. The deductor will use this credential to explain the lower TDS deduction. You must also apply the following papers along with the submission form for Nil/Low TDS deduction. Copies of income tax return, with attachments and acknowledgements, for the preceding three fiscal years. Copies of appraisal orders from the previous three fiscal years are available. Copies of financial statements, as well as any performance reports, over the previous three fiscal years. Revenue forecast for the current fiscal year. Tax statements for the past three fiscal years and income projections for the new fiscal year. Both those liable for paying the E-TDS return for the previous two financial years must have a copy of their PAN card. Estimated revenue for the next fiscal year. Any previous TDS defaults
Deduction of TDS rate
The TDS rate of deduction for the financial year 2020-2021 is 5%.
There will be no extra charge or school fees applied to the above prices.
TDS is deducted at a rate of 20% if the PAN is not given.
Know everything about Section 139 Income Tax Act – Applicability, Due Dates
FAQs
✅ What is the commission TDS limit?
The threshold cap for TDS deduction for commission/brokerage is Rs. 15,000 under Section 194H.
✅ Is commission revenue taxable under which heading?
The Commission revenue is classified as residuary income, which includes income from other sources (IFOS). However, if an individual is involved in a contract-based industry, it falls into the category of ‘Income from commission business.’
✅ On commission, how is TDS calculated?
TDS is withheld at the prescribed rate on commissions, without any extra surcharges or institutional cess. The TDS rate of the financial year 2020-2021 is 5%. However, if any agency has not given a PAN, TDS will be deducted at a rate of 20% per annum.
✅ What does the Income Tax Act’s Section 194a mean?
The rules for TDS deductions on interest owed, such as interest on a fixed deposit or interest on an unsecured loan, are highlighted in Section 194A of the Income Tax Act.
✅ What does the TDS segment code mean?
TDS rates for various income levels are listed in various section codes. For example, section 194H of the Income Act eliminates the rules for TDS deductions on commission/brokerage income.
✅ What exactly is a TDS exemption?
A TDS exemption certificate can be obtained by someone whose total tax obligation reaches the TDS exclusion cap. TDS exemption certificates for commission revenue can be issued by submitting Form 13 to the Assessing Officer (TDS).
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