What Is Section 194G & Section 194H Under Income Tax Act?

Section 194G: TDS on Commission on Sale of Lottery Tickets

We bet you’ve thought of buying a lottery ticket and waiting for a chance to win at least once in your life. Lottery tickets are an attractive way for many people throughout India to try their luck.

But you will be surprised to know that the ticket seller (or agent) who sells lottery tickets must follow the tax deduction provisions. Wonder how? Let’s see how the provisions of Section 194G work.

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Who is required to deduct TDS u/s 194G?

As per Section 194G, any person who pays an income by way of commission, remuneration, or prize on a lottery ticket to a person who has been selling lottery tickets (also stocking, distributing, or purchasing) must deduct TDS if the payment exceeds ₹ 15,000.

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What is the rate & time of tax deduction u/s 194G?

The rate of tax deduction u/s 194G is 5%. And the time of deduction is whichever is earlier of, the credit of such income to the account of the payee (receiver) or actual payment (in cash, cheque, draft or other modes).

Also, no TDS is required to be deducted where the amount of such income does not exceed Rs.15000.

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Section 194H: TDS on Commission or Brokerage

Section 194H applies to income tax deducted on commission or brokerage paid to resident individuals or HUFs. Starting from the financial year 2020-21, this TDS obligation extends to individuals and HUFs whose business turnover surpasses Rs.1 crore or professional gross receipts exceed Rs.50 lakh. Importantly, insurance commission covered by Section 194D is not subject to TDS under Section 194H.

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What is commission or brokerage?

Commission or brokerage refers to the fee or compensation paid to an agent or intermediary for facilitating a transaction or providing a service. This fee is typically a percentage of the transaction value.

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Who is required to deduct TDS u/s 194H?

Anyone (but not an individual or HUF) who is responsible for paying, to a resident, any income by way of commission or brokerage is required to deduct tax at source.

It is important to note that such a commission will not include the insurance commission which is liable to TDS u/s 194D.

Also, if an individual or HUF becomes liable to audit u/s 44AB (a) and (b), they must deduct tax u/s 194H.

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What is the rate & time of tax deduction u/s 194H?

The rate of tax deduction u/s 194H is 5%. And the time of deduction is earlier than the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft, or other modes).

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For what cases is brokerage exempt under Section 194H?

The following types of income are exempt from TDS under certain conditions:

• Income from brokerage or commission, up to Rs. 15,000 per financial year.
• Commission paid to employees by employers, covered under Section 192 of the IT Act.
• Commission earned from insurance and loan underwriting.
• Individuals possessing a NIL TDS certificate from an authorized body are exempt from TDS on all services.
• Payments made by television channels or newspaper companies to advertising agencies for advertisement booking, procurement, or canvassing.
• Turnover commission paid by the Reserve Bank of India (RBI) to Agency Banks.
• Brokerage or commission earned from providing securities to the public.
• Commission or brokerage paid by Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL) to their public call office franchisees.

TDS Deposit Due Date under Section 194G

• If the amount is deducted in March – on or before April 30 of the next financial year, then the TDS will be deposited to the department by 30 April 2024.
• In any other month – within seven days from the end of the month in which the tax deduction is made, then the TDS will be deposited to the department by 7 October 2024.

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