As per Section 194H of the Income Tax Act, TDS on commission income is required to be deducted by every person who is making the payment of such commission or brokerage.

Deductor

  • For the purposes of section 194H, a deductor is a person who is making the payment in the form of commission or brokerage to another person.
  • Deductor u/s 194H cannot be an individual or a Hindu undivided family.
  • Deductor u/s 194H is responsible for payment of TDS after deducting it from the payment he has made in the form of commission.

Deductee

  • Deductee is the person who is providing any services(not being the services exclusively excluded) to another person.He will get his commission after the deduction of TDS from it by the Deductor.

Commission as per section 194H

TDS on Commission Income has to be paid but before talking about TDS, let’s first understand the meaning of commission. Commission/Brokerage as per section 194H includes any payment, directly or indirectly, which is received or receivable:

  • For any services rendered (but it does not include the commission paid for professional services); or
  • For any services rendered in the course of trade of goods; or
  • In relation to selling and buying of any asset, not being securities.

The professional services on which section 194H doesn’t apply includes:

  • Medical;
  • Legal;
  • Engineering;
  • Architectural profession;
  • Technical consultancy;
  • Accountancy profession;
  • Interior decoration;
  • Such other profession as notified by the Board.

Rate of TDS on Commission Income

  • The rate of TDS on commission income is 5% with effect from June 1, 2016. However, earlier this rate was 10%.
  • The surcharge, Education Cess or SHEC shall not be added to the TDS rate. Therefore, TDS on commission income will be deducted at the source rates mentioned above.
  • In case the Permanent Account Number (PAN) has not been quoted by the deductee, then the rate of TDS on commission income will be 20%.

Time Limit

Time limit to deposit TDS on commission income:

In case of Non-Government Assessee

  • Tax for the month of March – 30th April
  • Tax for any other month – 7th Day of the next month

In case of Government Assessee

  • In case the tax has to be deposited without challan – Same Day
  • In case the tax has to be deposited with challan – 7th Day of the next month

Exemptions

The exemption limit for deduction of TDS on commission income is Rs.15000 w.e.f. June 1, 2016. However, earlier this limit was Rs. 5000.

How in the case of some of the specified payments or transactions, there is no need to deduct TDS. They are as follows:

  • Bank guarantee commission.
  • Depository charges on maintenance of DEMAT accounts.
  • Cash management service charges.
  • Charges for warehousing services for commodities.
  • Underwriting service charges.
  • Clearing charges.
  • Commission on Debit or credit card for transactions between the merchant establishment and acquirer bank.
  • If any insurance commission is paid, then TDS is not deducted on such a payment as insurance commission is covered u/s 194D.
  • If any commission or brokerage is payable by the BSNL or MTNL to their public call office franchisees then no deduction of TDS has to be done.
  • Any commission paid by the employer to the employee will be covered u/s 192 and under this section, the tax will not be deducted.

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