Before discussing TDS on commission or brokerage, we must understand the key term here i.e. Commission or Brokerage.
• Commission or Brokerage means payment received or receivable, by a person who is charging it in exchange of any services rendered with the exclusion of any professional services(as notified by the board under section 44AA).
• It includes other services which includes buying or selling of goods, valuable articles, assets or any other things.
• Selling and buying of Securities and other professional services are not included in it.
• Services can be rendered by any person, either in his own capacity or on behalf of some one else.
• Here, presumptive taxation is not applied in the case of income from commission.
TDS on Commission or Brokerage
• Section 194H of the Income Tax Act, 1961, talks about TDS on brokerage.
• TDS has to be deducted by the company or person, on or at the time of payment of any income to the payee in exchange for his services.
• Services rendered by the payee should be in the capacity of a broker or agent and the payment should be a commission or brokerage.
• For this section, services of insurance companies or insurance agents are not included. For them, there is a separate section.
• Here, deductor does not include an individual or Hindu Undivided Family.
• Here, TDS on brokerage is not for professional services that comes under the purview of section 44AA such as doctors, teachers, bankers etc.
• Even if the payee has another account, which could be in the form of a suspense account, and the income earned is deposited in that account, then that will be considered as an income on commission or brokerage and tax will be deducted accordingly from the payee.
TDS rate on Commission
• The rate at which TDS needs to be deducted is fixed at 5% from the financial year of 2017-18.
• Before that, this rate was fixed at 10%.
• In case the payee fails to provide his PAN number to the deductor, then the same rate at which tax will be deducted will increase to 20%.
• On the top if this rate, no surcharge, education cess or SHEC will be charged from the payee.
Due Timing of TDS on Commission
• TDS should be deducted at the time of credit of such income or commission to the payee.
• It would not matter if such amount is paid by cash or cheque it any other mode, tax must be deducted at the same time.
• Same should be informed to the broker in the form of issuing TDS certificate.
• Deduction of TDS done during the month of April should be deposited with the government on or before 7th of May and likewise same will follow till the month of February.
• Tax deducted during the month of March should be deposited with the government on or before 30th of April.
Issuance of TDS certificate
It is must for the deductor to issue TDS certificate to the taxpayer on time, failing which may incur penalty. Mainly there are 2 categories of deductions and due date of issuing certificate is also different for both of them. That are –
• Government Deductor –
1. For a First quarter (1st April to 30th June) – 15th August
2. For Second quarter (1st July to 30th September) – 15th November
3. For a Third quarter (1st October to 31st December) – 15th February
4. For a Fourth quarter (1st January to 31st March) – 30th May
• Non-government Deductor –
1. For First quarter (1st April to 30th June) – 30th July
2. For Second quarter (1st July to 30th September) – 30th October
3. For Third quarter (1st October to 31st December) – 30th January
4. For Fourth quarter (1st January to 31st March) – 30th May
Exemption or Reduction
• Tax is exempted for the cases, where the total proceeds exceed the amount of Rs 15, 000 in that particular financial year.
• On the top of this, if the payee have a valid reason for which he wants his taxes get reduced to nil or reduced to new rates, he can make an application to the assessing officer.
• If the assessing officer sees his valid reason then he can consider issuing him a certificate for the same upon his furnishing of PAN number.
• The application for reduction of taxes or tax rates has to be made under section 197 of the Income Tax Act.
• When the payment for brokerage is made to the bank listed in Reserve Bank of India Act, 1934.
• The services availed from these banks could be many for the purpose of exemption of taxes such as –
o Commodity warehousing
o Cash management
o Maintenance of DEMAT account
o Credit and Debit card settlement
o Services rendered under Payments and Settlements Act, 2007
o Bank guarantee commission etc.
• TDS on brokerage will not apply to the whole amount, in cases where additional service tax has been applied to the invoice. Here, TDS will only be deducted on the commission part of the invoice.
Other points to take note of
• For the purpose of section 197, there exist a fundamental relationship between the Principal and agent. Here, principal is the deductor and the agent is the broker.
• The term agent or broker should not be confused with insurance agents or broker.
• In a situation where the commission is withheld by the assessee or deductor which is due to the payee for any reason, tax would be deducted in that case also on or before the payment of the same to the payee/broker.
• As under this section TDS on commission or TDS on brokerage is must, if the case falls under this section.
Now all you need to know about TDS on Commission or Brokerage. From the year 2017, the government has been kind towards the broker by reducing the tax by 5% . Here, the government has tried to impart treatment to the insurance agents, as well as, other agents.
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