Section 194H: TDS Rate and Income Tax Deduction on Commission or brokerage payment

TDS u/s 194H is applicable to the person paying commission or brokerage to a resident exceeding Rs. 5,000/- per annum. TDS has to be deducted @10%, at the time of credit or payment whichever is earlier. S. 194H will not be applicable to the person who is an individual or an HUF whose gross receipts or sales or gross turnover exceeds Rs. 1 Crore in the case of business or Rs. 25 lakhs in the case of profession.

Commission or brokerage includes the following things:

• Any payment received or receivable for services rendered by a person on behalf of another person or
• Any payment received or receivable for services in the course of buying and selling of goods or
• Any payment received or receivable in relation to any transaction relating to any asset, valuable article or things not being securities.

Time limit of depositing the TDS:

• If the deduction is by or on behalf of the government then TDS deducted has to be deposited on the same day.
• In all other cases, TDS has to be deposited within one week from the end of the month in which TDS as been deducted from the source of income.

194H is not applicable on the following Commissions or brokerage:

• Payment of commission or brokerage by BSNL or MTNL to their public call office franchisees
• Payment of Insurance commission
• Commission paid or payable by RBI to the bank for collection of tax on behalf of government.
• Commission paid by employer to employee.

The updated chart of tax Deduction at Source for FY 2015-16 or AY 2016-17 is as under:

Related Cases:

S. 194H of IT Act, 1961—TDS—Parties have understood their relationship as principal and agent and what is paid to the agent by DD is 15 per cent of advertisement charges collected and remitted to it by the agent which is in the form of commission payable to the agent by DD. Therefore, 15 per cent of the advertisement charges retained by the advertising agents while remitting the remaining amount to the telecasting agency for canvassing and procuring advertisements for DD (telecasting agency) as per the terms of the agreement amounts to payment of commission to said advertising agencies by DD, and thus, the same is subject to TDS u/s 194H of the Act—CIT vs. Director, Prasar Bharti [2010] 230 CTR 277 (KER)

S. 194H, 201(1)(1A) of IT Act, 1961—TDS—The assessee-company is engaged in the business of providing cellular mobile telephone services to its customers through a network of distributors. Assessee entered into agreement with distributors for the purpose of distributing pre-paid SIM cards and other service products to the consumers and the margin enjoyed by the distributors is the commission/brokerage allowed by the assessee, therefore, assessee is liable to deduct tax at source u/s 194H of the Act and liable to penalty and interest u/s 201(1) and (1A) of the Act. The distributors provided essential services to the assessee in running a huge operational system and thus distributors are linking agents in the chain of delivery of services to consumers and the relationship between them is not a principal to principal basis—Vodafone Essar Cellular Ltd. vs. ACIT (2009) 317 ITR 234 (ITAT-Cochin)

S. 194H, 40(A)(IA) of IT ACT, 1961—TDS—Assistant Commissioner of Income-tax vs. Edroos Syed Mohammed Zakir [2012] 146 TTJ 100 (ITAT-MUMBAI)

S. 194H of IT Act, 1961—TDS—The assessee company is a cellular telephone service provider and it offering both pre-paid and post paid facilities to the subscribers. In course of its business, the assessee appointed distributors for prepaid cellular connections and recharge coupons and for the same, some margin is allowed to them. The transactions between the assessee and the distributors are on principal to principal basis and not on principal and agent basis. Hence, the margin allowed to the distributors on prepaid cards/recharge coupons is not commission and, thus, the provisions of S. 194H are not attracted—ACIT vs. IDEA Cellular Ltd. (2009) 125 TTJ 663 (ITAT-Hyd)

S. 194H of IT Act 1961—Deduction of tax at source—The transaction between assessee-airlines and travel agent does not fall within the ambit of S. 194H of It Act where assessee -airliness issues tickes to its travel agent at concessional rate that of principal to principal and difference in price is discount—CIT vs. Singapore Airlines Ltd.

S. 40(a)(ia) & 194H of IT Act, 1961—Business expenditure—The Munshis are also part of the labourers and their payments made on piece-rate workers at Rs. 240 per one lakh Biris cannot be considered as commission as defined in Explanation (i) to S. 194H of the Act and such payments cannot be disallowed u/s 40(a) (ia) of the Act—Jahangir Biri Factory (Pvt.) Ltd. vs. DCIT (2009) 126 TTJ 567 (ITAT-Kol.)

S. 194H of IT Act, 1961—Deduction of tax at source—The assessee-company, a cellular telephone service provider offering both pre-paid and post-paid facilities to subscribers, and appointed distributors for pre-paid cellular connections and recharge coupons. There is no principal-agent relationship between the assessee and the distributors nor payment at all by the principal to the distributor either directly or constructively, i.e., in an implied manner, that since there is no payment at all either in monetary terms or in terms of goods and/or services, the provisions of S. 194H are not attracted—ACIT vs. IDEA Celluar Ltd. (2009) 317 ITR 176 (ITAT-Hyderabd)

S. 194C, 194H of IT Act, 1961—Deduction of tax at source—The assessee group of concerns included two entities, MDIL and the assessee, whose vendors are same and a common agreement was executed with the assessees group entities. The assessee sales milk and milk products to vendors on the basis of the agreement on various stipulations. The goods were sold to vendors at a lesser price than the maximum retail price on the sale of goods on principal to principal basis. Since the transaction between the assessee and the concessionaires is a principal to principal transaction and not principal to agent transaction, therefore, the assessees case does not fall u/s 194 of the Act—ITO vs. Mother Dairy Food Processing Ltd. (2011) 7 ITR 16 (ITAT-Trib)

S. 194H, r/w S. 201 of  IT Act, 1961—Deduction of tax at source—Discount allowed on transactions resulting in outright purchases cannot be treated as brokerage or commission. For application of provisions of S. 194H, there should be relationship of principal and agent in order to bring discount in ambit of commission or brokerage. Hence, the margin allowed by the assessee which is a cellular telephone service provider company to its distributors for bulksales of its pre-paid and post-paid facilities to subscribers is nothing but commission paid to distributors which attracts provisions of S. 194H of the Act. Since the said transactions between the assessee-company and its distributors are on principal to principal basis and not on principal and agent basis and therefore, the assessee company is not liable to deduct TDS u/s 194 of the Act—ACIT vs. Idea Cellular Ltd. (2010) 125 ITD 222 (ITAT-Hyd)

S. 194H of IT Act, 1961—Deduction of tax at source—The assessee-company is engaged in the business of manufacture and sale of soft drinks and it appointed a C&F agent cum distributor for the purpose of distribution and sale of its products vide an agreement. Since the agreement taken between assessee and distributor is clearly stipulated to be an agreement on principal to principal basis, the payments made by the assessee to the distributor are incentives and discounts and not commissions and liabliable for deduction of tax at source u/s 194H of the  Act does not arise—CIT vs. Jai Drinks (Pvt.) Ltd.

S. 40(a)(ia) & 194H of IT Act, 1961—TDS—The disallowance in terms of S. 40(a)(ia) r/w S. 194H can be made only in respect of expenditure in the nature of commission paid/credited to the account of the recipient, or to any other account. Assessee engaged in conducting various madical diagnostic tests having entered into non-exclusive agreements with collection centres who collect samples from patients/customers for laboratory testing services and forward the same to the assessee and collect fees on its own behalf for such test. The assessee receives the amount of the invoice raise net of discount, from the collection centres. Since there was no pincipal-agent relationship between the assessee and the collection centres so as to attract the provisions of S. 194H and, therefore, by invoking the provisions of S. 40(a)(ia), the discount offered by the assessee to the collection centres cannot be disallowed—SRL Ranbaxy Ltd. vs. ACIT (2012) 143 TTJ 265 (ITAT-Delhi)

S. 194H of IT Act, 1961—Deduction of tax at source—Expln. (i) of S. 194H provides inclusive definition of commission or brokerage and the same may be received or receivable indirectly also by person or service rendered. In usual business transaction, commission is paid by the principal to agent after services is rendered but by said Expln., commission which is receivable in future is within its sweep. In the present case, assessee company is engaged in business of providings celluar mobile telephone services under brand name Airtel and since there is principal agent relationship between assessee and franchisees and therefore, receipt of discount by franchisee is, in real sense, commission paid to franchisees and same would attract the provisions of S. 194H of the Act. Bharti Cellular Ltd. Vs. Asstt. CIT

Income Tax Act, 1961, S, 194H—Commission or borkerage—”In the appeal the following questions of law are raised:— “(1) Whether in the facts and circumstances of the case, the Tribunal was right in setting aside the matter back to the respondent, when per se, the legal position was well settled and the material facts were on record with which the issue could have been decided by the Tribunal ? (2) Whether in the facts and circumstances of the case, the trade incentive given to the dealers would partake the character of commission or brokerage so as to attract the provisions of S. 194H of the IT Act, 1961? (3) Whether in the facts and circumstances of the case, the Tribunal is right in stating that the price at which the dealers sell the goods will alone determine the real relationship existing between the appellant company and the dealers?” While disposing of the appeal, the High Court of Madras held that:—”The question to be decided is whether it was a discount. In order to do it, the CIT(A) had assumed it was a ‘discount’, in fact he was putting the cart before the horse. It was, in these circumstances, the Tribunal had observed that the price would be one of the determinants. It is not correct to take one sentence of the order of the Tribunal and question the wisdom of Tribunal as though the Tribunal had observed that on the basis of the price alone the nature of the relationship between parties could be determined. Following the Gujarat High Court judgment (cited supra), the Tribunal had observed that if the dealers were selling the goods at the price for which they are purchasing from the company, then trade incentive would amount to commission only. We should read the whole order in its entirety and not tear one sentence out of context. Therefore, we are not answering the question of law since the matter has been remanded to the file of the AO. The AO shall independently examine the issue, namely, whether the trade incentive was a discount and to prove this, if any other evidence available to the assessee, it is open to the assessee to produce the same before the AO.” Tube Investments of India Ltd. vs. ACIT [2009] 10 ITCD 51 (Mad.)

S. 194H, 201(1)(1A) of IT Act, 1961—Deduction of tax at source—Principal agent relationship is a sine qua for invoking the provisions of S. 194H. When bank issues the bank gurantee, on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount, on demand to the beneficiary, and it is in consideration of “bank guarantee commission”. While it is termed as “guarantee commission”, it is not in the nature of “commission” as it is understood in common business parlance and in the context of S. 194H of the Act. This transaction is not a transaction between principal and agent so as to attract the tax deduction requirement u/s 194H. Hence,assessee was not required to deduct tax at source u/s 194H of the Act and, thus, the question of levy of interest u/s 201(1A) cannot arise—Kotak Securities Ltd. vs. DCIT (2012) 14 ITR (Trib) 495 (ITAT-Mum.)

S. 194H of IT Act, 1961—Deduction of tax at source—S. 194H provides for payment of commission or brokerage where income tax is to be deducted at source by the person responsible for paying such commission or brokerage.—Jagran Prakashan Ltd. vs. DCIT

S. 194H of IT Act, 1961—Deduction of tax at source—It is well-settled that if the property in the goods is transferred and gets vested in the concessionaire at the time of the delivery, then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent. In the present case, concessionaires are selling milk and other products from booths owned by assessee-company (Diary) and are using assessee’s equipments and furniture in course of sale of milk and this fact may not be determinative of relationship between assessee and its concessionaires with regard to sale of milk and other products. Thus, difference between MRP and the price which concessionaires paid to assessee in his income from business and it cannot be categorized as commission within the meaning of S. 194H of the Act—CIT vs. Mother Diary India Ltd.

S. 194H Income-tax Act, 1961—Deduction of tax at source—Kerala State Stamp Vendors Association vs. Office of the Accountant General.

Reference:

As Per Section 194H, of the Income Tax Act, 1961-

Commission or brokerage.

194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee 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, deduct income-tax thereon at the rate of [ten] per cent :

Provided that 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 [five thousand rupees] :

Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section:

Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.

1. —For the purposes of this section,—

(i)  “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;

(ii)  the expression “professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;

(iii)  the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ;

(iv)  where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.