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Section 194H states the provisions made for Tax Deduction at the Source on Commission and brokerage by a resident individual. An individual who pays any type of brokerage or commission is liable for tax deduction under section 194H. However, this section does not include the commission earned through insurance sales.
Section 194H deals with TDS deduction on the payment of commission or brokerage. It mandates tax deduction by the person (other than individual/HUF) responsible for paying commission or brokerage to resident persons at the rate of 5% when the amount exceeds Rs.15000 in a year. [3.75% from 14th May 2020 to 31st March 2021, at a reduced rate as per the relief announced by the Finance Minister due to Coronavirus pandemic].
TDS under section 194H shall also be deducted by all the individuals and HUFs (Hindu Undivided Family) who are required to get their accounts audited under section 44AB.
To understand section 194H, you have to understand the basics of commission and brokerage. Any payment that is received or receivable, directly or indirectly by any person acting on behalf of another person is said to be commission or brokerage. This even includes any transaction done for valuable assets or articles.
Tax deduction at source on brokerage or commission includes various services. These are as follows:
There are few exceptions of these sorts of commissions or brokerage on which no tax deduction at the source is done under this section. They are:
Whenever there is a credit of incomes related to brokerage or commission to the account of the payee or any other account, tax deduction at source will be done under the section of 194H of income tax act 1961. Even if these incomes are accounted in suspense accounts or by another name at the time of payment that is made in cash or by cheque or draft, tax deduction at source (TDS) is done under section 194H.
The rate of tax deduction at source is fixed at the rate of 5% [3.75% from 14th May 2020 to 31st March 2021, at reduced rate as per the relief announced by the Finance Minister due to Coronavirus pandemic].in income tax act. If in case the PAN is not quoted by the deductee, the rate of tax deduction at source (TDS) will be charged at 20%.
This prescribed rate of tax is inclusive of all taxes and no health & education cess is required to be added separately.
There are various conditions in which the Tax deduction at source is not applicable under section 194H. They are:
The tax amount that is deducted in April to February is to be deposited before the 7th of the next month. For March, it is to be deposited by the 30th of April.
Example:As discussed above the deductee can apply for a lower rate or NIL rate of TDS to the assessing officer. For this various actions are to be taken by the assessing officer.
After validating all these actions,the assessing officer can agree to the application of the deductee.
Some of the details that are required to be given at the time of filing this application of lower or NIL rate of Tax Deduction at Source are:
Few cases are there in which the Tax Deduction at Source(TDS) is exempted under section 194H. They are:
You can sum up that if you earn any income from brokerage or commission, you are liable to pay tax deduction at source(TDS) under the Income Tax Act 1961. All the provisions regarding this Tax Deduction at Source (TDS) are made under section 194H. However there are few exceptions of commission or brokerage such as commission on Insurance sales and so on that are exempted from TDS under section 194H. Under this the tax is deducted at the time of payment of commission or brokerage is done.
The individuals who earn income from any sort of commission or brokerage are liable to deduct tax at the source.
T The rate at which the tax is deducted at the source is 5%. However, if the details of PAN are not given, this rate increases to 20%.
TDS is deducted at the time of payment of any commission that is made in cash, by cheque or draft, as applicable.
TDS limit on Commission and brokerage(Section 194H) for F.Y. 2020-21 is Rs. 15000/-
Interest @1.5% per month or part of a month on the amount of TDS is leviable from the date of tax was deductible till the date of tax actually deducted.
TDS @10% is required to be deducted if the Total Rent to be paid exceeds Rs. 2,40,2000. If it is not deducted interest @1% per month or part of the month is leviable on the amount of TDS is leviable from the date on which tax was deducted till date on which tax is actually paid.
ITR-4 is required to be filed if the commission income is the main source of your income.
If the commision income is more than the salary income then ITR-4 is required to be filed otherwise ITR-1 can be filed and commission income can be shown under other sources.
If the amount of commission is small then fill ITR-1 and if the amount of commission is Substantial then go for ITR-4.
Yes, all the expenses against commission income is deductible while filing your income tax return.
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