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FAQ on Section 194H – TDS from Commission and Brokerage

Q1. Who is responsible to deduct tax u/s 194H?

Ans. Any person, (other than individual or a Hindu undivided family) who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, deduct income-tax thereon.

However, individuals and HUF who were covered under section 44AB(a) and (b) in the preceding previous year i.e. whose gross turnover/receipts of the business/profession in the immediately preceding financial year exceeded business/profession in the immediately preceding financial year exceed Rs.  1,00,00,000 / 25,00,000, as the case may be, are also required to deduct tax at source.

Q2. What is the point of deduction of TDS u/s 194H?

Ans. It will be deducted at the time of credit of such income to the account of the payee or to any account, whether called suspense account or by any other name or at the time of payment, of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.

Q3. At what rate TDS has to be deducted u/s 194H?

Ans. The rate of TDS shall be 10%.

Notes: No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.

The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee on or after 1-4-2010.

Q4. Under what circumstances TDS u/s 194H is not deductible?

Ans. (1) No deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to the payee, does not exceed ` 5,000 (` 2,500 upto 30.06.2010)

(2) No tax shall be deducted on any commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office franchises (Third proviso to section 194H inserted w.e.f. 1-6-2007)

Q5. What is the meaning of words “Commission or brokerage” for the purpose of section 194H?

Ans. Commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person:

(a)    for services rendered (not being professional services), or

(b)    for any services in the course of buying or selling of goods, or

(c) in relation to any transaction relating to any asset, valuable article or thing, not being securities.

Q6. Whether Provisions of section 194H applicable on discounts offered  by laboratories rendering testing facility to collection centers/  franchisees?

Ans. Where assessee laboratory was rendering services of testing samples to collection centres/franchisees, TDS under section 194H not required in respect of discount offered by assessee to said collection centres/ franchisees. 

Q7. Whether Provisions of section 194H applicable to trade incentive to  dealers?

Ans. Where assessee, a manufacturer of bicycles, was giving trade incentive to dealers, Tribunal was justified in holding that if dealers were selling goods at price for which they were purchasing from company, such trade incentive would amount to commission for purpose of section 1 94H. 

Q8. Whether Provisions of section 1 94H applicable on Discount granted  to licensed stamp vendors on sale of stamp paper?

Ans. Discount granted to licensed stamp vendors on sale of stamp paper, by treasury cannot be termed as `commission or brokerage’ to attract TDS under section 194H. 

Q9. Whether provisions of S. 194H shall apply to free issue of goods under trade scheme?

Ans. Free issue of goods under trade scheme and free gift on sponsorship and promotions and early payment discount given to distributors do not constitute commission as the distributor works on principal to principal basis and not on principal agent relation.

Q10. Whether TDS u/s 194H deductible on turnover commission payable by RBI to Agency Banks?

Ans. Tax deduction at source under section 194H should not be applicable in respect of Turnover Commission payable by the Reserve Bank of India to the Agency Banks (Banks authorized for conducting Government business) for performing the general banking business of the Central and State Governments on behalf of RBI. Circular: No. 6/2003, dated 3-9-2003.

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