TDS stands for tax deduction at source. The Government of India introduced TDS in India to avoid increase in unaccounted incomes. On few transactions specified by the Government of India the payee deposits some amount to government as TDS in name of receiver. The receiver is allowed to adjust such TDS against total tax liability. This article deals with TDS on various commission and Brokerages under Income Tax.
What is Commission or Brokerage?
Commission or Brokerage is service amount charged by the service provider for providing the service. It is charged as fixed percentage of some amount, fixed amount or combination of both.
Most common professions or jobs in which commission is received by a person are-
- Recovery Agent
- Sales person
- General Manager
- Marketing Agent
- Insurance Agent, and many more
Example-Sales person of a company will receive commission of 10% on sales made by him. If he makes sales of Rs. 1,000, he will be provided with Rs. 100 as commission.
Insurance Agent are given commission on every policy they sell. He is entitled to Rs. 500 on every policy he sells and 10% of policy amount is also given as commission.
Read Also: TDS on Cash Withdrawal w.e.f 1st July 2020- simplified with examples
A lot of persons are involved in commission or brokerage associated businesses. Many try to avoid filing of the Income Tax Return to avoid the payment of taxes. So, to find out them, the government introduced TDS on such transactions.
As per Income tax Act, 1961, following sections relates to TDS on commission or brokerage-
- 194D –TDS on Insurance Commission
- 194G – TDS on Commission on sale of lottery tickets
- 194H – TDS on Commission or Brokerage
- 192 – TDS on Commission received from employer by salaried Employee
- 195 –TDS on payments made to NON-RESIDENT or FOREIGN COMPANY.
Read Also: How to pay TDS online?- TDS का भुगतान Online कैसे करें?
194D – TDS on Insurance Commission
| Payment By | Anyone |
| Payment To | Any Resident |
| Nature of payment | Insurance Commission |
| Threshold Limit | No TDS if total commission in financial year is less than or equal to 15,000. |
| Rate | 10% in case of Domestic company and @ 5% in any other case |
TDS is deducted when transaction is recorded or payment made to the person, whichever is earlier. Generally, payment is made by insurance companies.
Read Also: ITR-3 : Who can file itr 3 | How to file ITR 3?
194G – TDS on Commission on sale of lottery ticket
| Payment By | Any person |
| Payment To | Any Person |
| Nature of payment | Commission in connection to lottery tickets |
| Threshold Limit | No TDS if total commission in financial year is less than or equal to 15,000 |
| Rate | 5% |
TDS is deducted when transaction is recorded or payment made to the person, whichever is earlier.
Read Also: TDS on Rent in Income Tax – Section 194-I & Section 194-IB
194H – TDS on Commission or Brokerage
| Payment By | An entity, if Tax audit is required in previous financial year. |
| Payment To | Any Resident |
| Nature of payment | Any payment related to commission or brokerage. If not covered in any of the above sections |
| Threshold Limit | No TDS if total commission in financial year is less than or equal to 15,000 |
| Time | Credit or payment, earlier |
| Rate | 5% |
TDS is deducted when transaction is recorded or payment made to the person, whichever is earlier.
Generally, if an Individual or a HUF has turnover more than Rs 1 Crore then tax audit is required.
192 – TDS on Commission received from employer by salaried Employee
Read More: TDS on Salary : How to calculate TDS on salary as per section 192
195 – TDS on payment made to non-resident or foreign company
Sometimes a resident makes payment to foreign national or company, so such person will not be registered under Indian Income Tax but he will be liable to pay tax in INDIA. To meet such problems this section was introduced.
Some payments which are in nature of commission and paid to foreign national or company attract TDS as per section 195.
There is no threshold limit in this section
| Payment By | Any Person |
| Payment To | Any Non- Resident |
| Nature of payment | Any payment but not related to salary |
| Rate | TDS as per prescribed rates in the Income Tax Act. |
TDS is deducted when transaction is recorded or payment made to the person, whichever is earlier.
In the case of interest payable by the government or public sector bank or public financial institutions in respect of notified mutual funds, Income Tax shall be deducted only at the time of payment
Read Also: Income Tax Rate For AY- 2020-2021/ FY- 2019-2020
important Points to Note
1. In all the above cases, when self-declaration under Form 15G/ 15H is filed, no TDS is deducted.
2. If in any case, PAN is missing, TDS rate will be 20%.
The author of the above article is Aditya Kishore.
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