SECTION 194H : TDS on Commission and Brokerage

Introduction

TDS stands for Tax Deducted at Source. 194H is a specific provision under the Income Tax Act, 1961, which mandates the deduction of tax at the rate of 5% from the gross amount payable to a resident senior citizen (aged 60 years or above) who receives interest income from any source other than interest on securities. This provision is applicable only to certain specified institutions and organizations, such as banks, cooperative societies, and post offices, which are required to deduct TDS under Section 194H of the Income Tax Act. The deducted tax is then paid to the Government by the deductor on a quarterly basis. The senior citizen is eligible to claim a credit for the TDS amount deducted while filing their income tax return.

Who can Deduct TDS under Section 194H?

Under Section 194H of the Income Tax Act, 1961, the following entities are required to deduct TDS at the rate of 5% from the gross amount payable to a resident senior citizen (aged 60 years or above) who receives interest income from any source other than interest on securities:

1. Banks
2. Cooperative societies
3. Post offices

However, this provision is not applicable to the following entities:

1. Non-resident senior citizens
2. Senior citizens who receive interest income from securities, such as bonds, debentures, and shares
3. Senior citizens who receive interest income from certain specified sources, such as National Savings Certificates (NSCs) and Kisan Vikas Patra (KVPs), as these instruments are exempt from TDS under Section 197A of the Income Tax Act.

TDS Rate on Commission and Brokerage

The rate of TDS (Tax Deducted at Source) on commission and brokerage payments made to residents is governed by Section 194J of the Income Tax Act, 1961. The current TDS rate on commission and brokerage payments is:

1. For individuals: 5% (if total income or gross receipts in a financial year is less than Rs. 1 crore) or 10% (if total income or gross receipts in a financial year is Rs. 1 crore or more)
2. For companies: 2% (if total income or gross receipts in a financial year is less than Rs. 1 crore) or 5% (if total income or gross receipts in a financial year is Rs. 1 crore or more)

The TDS rate on commission and brokerage payments made to non-residents is governed by Section 195 of the Income Tax Act, and the applicable rate depends on the nature of the transaction and the country of residence of the non-resident. It is advisable to consult a tax professional for specific guidance on TDS rates for non-residents.

The deductor (the person making the payment) is required to deduct TDS at the applicable rate and deposit it with the Government within a specified time frame. The deducted amount is then reflected in the Form 26AS of the deductee (the person receiving the payment).

When is TDS Deducted under Section 194H?

TDS is deducted under Section 194H of the Income Tax Act, 1961 when any person (except an individual or HUF who is not liable for audit under section 44AB) pays any income by way of commission or brokerage to a resident person. The rate of TDS is 5%and it is deducted at the time of credit or payment of such income, whichever is earlier. However, there are some exceptions where TDS is not deducted under Section 194H, such as when the amount of commission or brokerage is less than or equal to Rs.15,000 in a financial year. For more details, you can refer to the following links:

Provisions for Nil Tax or Lower TDS under Section 194H

Under Section 194H of the Income Tax Act, 1961, there are certain provisions for nil tax or lower TDS (Tax Deducted at Source) rates for senior citizens (aged 60 years or above) receiving interest income from certain sources. These provisions are as follows:

1. Nil TDS: If the total interest income of a senior citizen from all sources in a financial year is less than Rs. 50,000, then no TDS is required to be deducted by the payer.

2. Lower TDS: If the total interest income of a senior citizen from all sources in a financial year is Rs. 50,000 or more but less than Rs. 1 lakh, then TDS at the rate of 5% is required to be deducted by the payer instead of the normal rate of 10%.

3. Exemption from TDS: Interest income from certain specified sources, such as National Savings Certificates (NSCs) and Kisan Vikas Patra (KVPs), is exempt from TDS under Section 197A of the Income Tax Act. This means that no TDS is required to be deducted by the payer for such interest income received by senior citizens.

Exemption on TDS on Brokerage

Exemption from TDS (Tax Deducted at Source) on brokerage is available under certain conditions, as specified in Section 194IA of the Income Tax Act, 1961. The conditions for exemption are as follows:

1. The brokerage received by the broker or agent should be towards the sale or purchase of securities listed on a recognized stock exchange.

2. The securities should be held by the client for more than 12 months before they are sold or transferred.

3. The total amount of brokerage received by the broker or agent during a financial year should not exceed Rs. 25,000.

4. The broker or agent should furnish a declaration in Form 15G or Form 15H (as applicable) to the client, stating that TDS need not be deducted as the total income of the client is below the taxable limit.

Things to Remember about TDS on Commission and Brokerage

Here are some important things to remember about TDS (Tax Deducted at Source) on commission and brokerage:

1. Commission or brokerage received by a person in the course of his business or profession is subject to TDS under Section 194J of the Income Tax Act, 1961.

2. The rate of TDS on commission or brokerage is 5% (plus surcharge and education cess) as per the current tax slabs.

3. The payer (i.e., the person making the payment of commission or brokerage) is responsible for deducting TDS at the appropriate rate and depositing it with the Government.

4. The payer is required to issue a TDS certificate (Form 16A) to the payee (i.e., the person receiving the commission or brokerage) within 15 days of deducting TDS.

5. The payee can claim a credit for the TDS deducted while filing his income tax return.

6. If the total income of the payee is below the taxable limit, then he can furnish a declaration in Form 15G or Form 15H (as applicable) to the payer, stating that TDS need not be deducted.

7. If the payee is a non-resident Indian, then he may be subject to different TDS rates and procedures, as specified under the Income Tax Act and Double Taxation Avoidance Agreements (DTAA).