194H of Income Tax Act: Meaning, Conditions and More.

Are individuals required to pay taxes on commissions and brokerages? The answer is yes. You must pay taxes on brokerages and commissions, in accordance with Section 194H of Income Tax Act of India. In the article, let’s learn more about Section 194H of Income Tax Act and everything it covers.

Table of Contents

See also: Section 112A of Income Tax Act

Section 194H of Income Tax Act: Meaning

Guidelines for tax deductions on amounts paid as commission or brokerage are covered under Section 194H.

Who needs to pay taxes under Section 194H?

Companies must deduct taxes at a rate of 5% when giving residents commission or brokerage payments. Individuals and HUFs are not required to withhold taxes from amounts that exceed Rs 15,000 in a single fiscal year. Individuals and Hindu Undivided Families, however, must deduct taxes in accordance with Section 194H if they are subject to a tax audit under Section 44AB. For 194H TDS deduction under this provision, the TAN and PAN of both parties are required.

What is the rate at which the tax is deducted?

TDS of 5% is deducted under this section.

Section 194H of Income Tax Act: Inclusions

Any payment received or anticipated in exchange for operating on someone else’s behalf, whether directly or indirectly, is referred to as a commission or brokerage. Included in this are any payments made for priceless items. The following services would be included in commission or brokerage tax deductions:

Services of any sort, except those provided by professionals
Other than securities, services you obtain during transactions involving valuable assets
Services you get in connection with buying or selling items

However, under Section 194H, some commissions and brokerage fees are not eligible for a tax deduction. These consist of the following:

Your brokerage fee for buying and selling assets listed on a stock exchange.
Any payment the RBI makes to various financial institutions.
The brokerage you pay for buying stocks in a public offering.
Any sum you invest or pay for LIC insurance goes to any cooperative society.
Amount received as interest from a savings account, recurring deposit, Kisan Vikas Patra, NSC, or another type of account.

Section 194H of Income Tax Act: When should TDS be deducted?

When money is credited to a payee’s account or another account, you can deduct tax under Section 194H. Even when paying commission in a suspense account, such payments are deductible from income.

Section 194H of Income Tax Act: TDS reduction

You can request to have the tax deduction made under Section 194H reduced if you are a deductee. To receive a tax deduction at a lower rate, you must submit an application to an assessing officer.

While you submit a certificate according to Section 197, the assessing officer is required to authenticate your PAN.

The evaluating officer must additionally confirm that the certificate’s threshold limit was not exceeded during any quarters. Additionally, you must correctly cite the certificate.

The evaluating officer will approve the TDS rate decrease after reviewing and validating all relevant data. When requesting a decrease in the tax deduction rate, you must include the following information:

The assessee’s name
Address information
PAN
The objective for which you used the funds
Information on three years’ worth of income
Revenue projections for the current fiscal year
The previous three years’ worth of tax payments, among other things

Section 194H of Income Tax Act: Tax deduction amount

A tax deduction of 5% is done if you pay commission or brokerage fees totalling more than Rs 15,000 in a single fiscal year. There won’t be any extra deductions for education-related fees or surcharges. The TDS can only be a maximum of 20% in the absence of a PAN card.

Section 194H of Income Tax Act: Deadline for TDS deposits

Taxes deducted from paychecks between April and February must be deposited by the seventh of the following month at the latest. Taxes withheld in March must be deposited by April 30 at the latest. For instance, tax deducted on April 25 must be submitted by May 7 and tax deducted on March 15 must be deposited by April 30.

Section 194H: Conditions under which TDS is not deductible

When the amount or the total amount of such revenue to be credited or paid during the financial year does not exceed Rs 15,000, no deduction is allowed under this clause. According to Section 197, the Person may request a deduction of tax at a lesser rate or at a rate equal to NIL.

FAQs

Do trade incentives to dealers fall under the provisions of Section 194H?

The taxpayer in Tube Investments of India Ltd. v. ACIT (2009) was a bicycle manufacturer who provided trade incentives to dealers. The tribunal determined that such trade incentives would qualify as commissions under Section 194H if dealers were selling items at the same price they were buying from the corporation.

Is the turnover commission that the RBI must pay Agency Banks subject to TDS under Section 194H?

According to Circular: No. 6/2003, dated 3-9-2003, Turnover Commission payable by the RBI to Agency Banks, i.e. Banks authorised for conducting Government business, for performing the Central and State Governments' general banking business on behalf of RBI, shall not be subject to TDS under section 194H.

When should TDS (point of deduction) be deducted in accordance with Section 194H?

TDS under Section 194H must be withheld at the moment that such income is credited to the payee's account or any other account with that name or at the time of payment by whatever method, whichever occurs first.

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