What is Section 194H of Income Tax Act?

  • Author :
  • TATA AIG Team
  • Published on :
  • 21/11/2023

The law and taxation system in the country is difficult to comprehend, especially with the various divisions, provisions and tax sections. An essential aspect of the Income Tax Act is Section 194H.

For anyone confused about how to add commission and brokerage income and under which head, Section 194H is the answer. It deals with all the TDS deductions relating to payments made as commission or brokerage.

For any working professional and business organisation, or even an individual who deals with commission or brokerage-related payments, having the right knowledge about Section 194H Income Tax Act is crucial.

In this blog, we will look at the detailed explanation of the 194H TDS section in the Income Tax, Sec 194H TDS rate, and Section 194H limit on deductions while covering aspects like applicability and filing requirements.

Understanding Section 194H of the Income Tax Act

Section 194H of the Income Tax Act primarily focuses on the relevant TDS deductions based on brokerage or commission payments made by individuals or businesses.

As per this section, any entity participating in brokerage or commission-related transactions must deduct a per cent of the earned income as tax to deposit to the government.

The end goal for Section 194H is to ensure timely tax payments to the government to avoid cases of tax evasion.

All About Commission and Brokerage

The commission TDS section refers to any payment or income earned by one person acting in place of another. An example to understand this better would be your real estate agent drawing a commission on your house purchase from you and the landowner.

The TDS rate on commission is currently at 5% if the earned income via commission payments exceeds ₹15,000 in one year.

Brokerage-related payments refer to any broker charge for services like data investigation, trading support, maintenance fees, etc. An example to understand this better would be a person managing your financial portfolio as per market fluctuations to get you the best results.

The sec 194H TDS rate for brokerage is 5% if the earned income via commission payments exceeds ₹15,000 in one year.

Eligibility Criteria for Section 194H

An individual who pays brokerage or commission to another individual has to deduct TDS under Section 194H.

The deduction must be done before crediting the final payments to the payee account.

As per section 44AB, individuals also need to pay TDS for their own tax accounts if their earning is above ₹50 lakh or their business turnover is above ₹1 crore.

Section 194H is only applicable if the payee has a valid TAN.

Both payers and payees must have a valid PAN to continue TDS deductions on commission or brokerage payments.

The standard rate for TDS deduction is 5% on any payments. However, if either paying or receiving parties do not have a PAN, the TDS rate is 20%.

Exclusions of TDS on Brokerage or Commission

If the earned income via commission or brokerage is less than ₹15,000 in one financial year, it can be exempted from TDS deductions.

Any interest earned from NRI accounts is exempted.

If any commission or brokerage is paid to an employee from an employer, the TDS deduction is done under a different section and not Section 194H.

Any commission earned via card transactions between banks and merchants is not covered under Section 194H.

All payments made to the RBI or any other bank.

Compliance Requirements under Section 194H

Following the rules of Section 194H is necessary to comply with the law and taxation system of the government. The key compliance requirements include.

Timely TDS Deduction

It is mandatory to deduct TDS for all commission and brokerage payments that add up to more than ₹15,000 in one year. You must do it either while making the payment or when the amount is credited to the payee’s account.

Timely TDS Deposit

Along with making the right deductions, depositing the same with the government within the mentioned due date is necessary to avoid unnecessary fines and penalties.

Timely Filing for TDS Returns

All the quarterly deductions and deposits must be updated to the Income Tax Department via TDS return filing. This is mandatory and is completed using Form 26Q.

Providing TDS Certificates

All TDS deductions under Section 194H require individuals and businesses to provide the payee with TDS certificates using Form 16A as a mandate. Failure to do so can result in ₹100 fine for each day it is delayed.

How to Reduce TDS Deduction Rates?

To claim a lower TDS reduction rate, an individual has to submit a Form 13 to the Assessment Officer online or manually. Along with the form, here is a list of documents you can submit to increase the application approval chances.

Income statement of 3 years

Projected income earnings for the current year

TDR returns documents from the last 2-3 years

PAN card details

Copy of last 3 assessment orders

ITR copies of the last 3 years

TDS account details of the payees

Conclusion

The understanding of the inclusions, rules, and exclusions under Section 194H is important for every business and individual that has commission or brokerage income. You need to comply with the taxation rules to avoid heavy penalties.

TDS deductions are mandated by law for different categories and rates. However, the commission on a medical insurance plan or any other health insurance is not included in this section.

Yet, one key benefit of investing in a health insurance policy from Tata AIG is reduced tax liability due to other tax exemptions and provisions under the Income Tax Act.

You can easily compare health insurance plans based on premium and coverage to choose the one that fits your needs the best. In return, you are not only saving money on taxes with health insurance but also giving yourself a financial safety net.

FAQS

What is the due date to deposit the TDS deduction under Section 194H?

The due date for all months except March is the 7th of the preceding month. However, for the month of March, the due date is 30th April every year.

Is there a penalty for not depositing the TDS deduction under Section 194H on time?

Failure to comply with the due dates to deduct and deposit TDS can attract heavy penalties and fines.

The value of the penalty can be equivalent to the total TDS, along with an additional 1.5% interest payment per month from the due date till the deposit date.

Can I file a TDS return online?

Yes, you can file a TDS return online by going to the official website of the Income Tax Department.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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