This is article is about TDS on commission or brokerage paid/received. All major concepts related to it are discussed in this article.
What is TDS on Commission?
Commission is a payment made to a commission agent or a broker for performing some services (other than professional service) on behalf of others or for any services in the course of buying or selling of goods (other than securities)
It does not include professional services referred in section 44AA of income tax act.
Section 44AA refers professional services to profession of legal, medical, engineering, architecture, accountancy, technical consultancy and interior decorator.
Here securities means as defined in Securities Contracts (Regulation) Act, 1956.
Commission agent or broker performs intermediary services other than above professional services like a property dealer.
Commission payment attracts TDS under section 194H as per the income tax act.
The person paying the commission has to deduct TDS and pay the amount of commission /Brokerage net of taxes (after deduction of TDS).
This TDS amount is deposited to the government and the commission agent can see this amount in 26AS form by logging into income tax portal/account.
To whom section 194H is applicable?
All persons other than an Individual or HUF are liable to deduct TDS under section 194H.
It is applicable to Individual or HUF when their turnover exceeds Rs. 1 Crore in case of business or Rs. 50 Lacs in case of profession.
Section 194H is also not applicable to commission payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
When TDS is deducted for commission?
TDS on commission is deducted at the time of credit in books or payment whichever is earlier.
The payee will pay the amount to the Commission agent / Broker net of taxes.
The commission agent at the time of income tax return filing can adjust the amount of TDS from his total tax liability.
Example 1-If Mr. A has received a services for finding a Property at a reasonable price and the Broker Mr. B has raised a bill of Rs. 1,00,000 and suppose Tds rate is 3.75% then tax will be deducted @3.75% on Rs. 1,00,000= Rs. 3,750 This amount of TDS (Rs.3, 750) will be deposited to the government and Mr. A will pay Rs. 96,250( net of TDS).
Mr.B can see this TDS deducted in 26AS by logging Into his Income tax portal . And at the time of Income tax return filing this amount of TDS Will be adjusted from the total Tax liability of the Mr. B.
What is TDS rate on commission?
Rate of TDS under section 194H of Income tax Act is 3.75% (earlier it was 5%) of the Brokerage / Commission.
(TDS rate has been reduced to 3.75% due to covd-19 from 14/05/2020 till 31/03/2021.)
If the Broker / Commission agent fails to furnish his PAN details then the recipient of services will be liable to deduct TDS @ 20% of commission / Brokerage.
What is the limit for TDS on commission?
TDS can only be deducted only if the aggregate of brokerage or commission during a financial year exceeds Rs. 15,000.
As per section 197 if the Broker/ Commission agent makes an application to A.O. (Assessing Officer) for non deduction of TDS or less deduction of TDS as his income does not exceeds the basic exemption limit of Rs. 2.5 lacs then the A.O after satisfying with the condition will grant him NIL TDS certificate.
This certificate will be shown by the Commission agent/ Broker to the recipient for not deducting his TDS.
Example 2-If Mr. A has received a services for finding a Property at a reasonable price and the Broker Mr. B has raised a bill of Rs. 12,000 and suppose TDS rate is 3.75% then tax will not be deducted by the recipient as the amount of commission does not exceeds Rs. 15,000/- during the financial year.
Example 3-If Mr. A (Individual) has received service for finding a personal Property at a reasonable price and the Broker Mr. B has raised a bill of Rs. 48,000 and suppose TDS rate is 3.75% then tax will not be deducted by the recipient as he is individual and he does not have business or professional income exceeding Rs. 1 core or 50 Lac respectively. So in this case Mr. B will receive the whole amount of Commission of Rs. 48,000 without any deduction of TDS.
So in this case Mr. B will receive the whole amount of Commission of Rs. 34,000 without any deduction of TDS. And for remaining amount of Rs.16,000/- tax will be deducted @3.75% on Rs. 16,000/- which is equal to Rs. 600/-
This amount of TDS (Rs.600) will be deposited to the government and Mr. A will pay Rs. 15,400( net of TDS). Mr. B can see this TDS deducted in 26AS by logging Into his Income tax portal. And at the time of Income tax return filing this amount of TDS Will be adjusted from the total tax liability of the Mr. B so the total amount that Mr. B will receive is Rs. 34,000 + Rs. 15,400(net of taxes) = Rs. 49,400/-
Latest notifications for section 194H
Due to Covid -19 The Finance Minister has reduced to rate of TDS by 25% to ensure more funds in the hands of Commission agents/ Broker , so from 14/05/2020 to 31/03/2021 TDS on Freight U/S 194H is reduced to 3.75% (earlier it was 5%).