Section 194H of the Income Tax Act, 1961 is an important provision that deals with the deduction of tax at source on commission or brokerage payments. The section has undergone significant changes in recent years with the introduction of the Finance Act, 2017. In this blog, we will discuss the provisions of Section 194H of the Income Tax Act, 2017-18 in detail.
Meaning of Section 194H
Section 194H of the Income Tax Act, 1961 is applicable to any person who is responsible for paying commission or brokerage to a resident person. The section mandates the deduction of tax at source (TDS) on such payments at the time of credit of such income to the payee’s account or at the time of payment, whichever is earlier.
Rate of TDS
The rate of TDS under Section 194H is 5%. However, if the payee has provided his or her Permanent Account Number (PAN), the TDS rate will be 1%.
Applicability of Section 194H
Section 194H is applicable only if the payment of commission or brokerage to a resident person exceeds Rs. 15,000 in a financial year. It is important to note that the threshold limit of Rs. 15,000 is applicable to each payee separately. For instance, if an individual makes multiple payments of Rs. 10,000 to the same payee during a financial year, the provisions of Section 194H will not be applicable.
Exemptions
There are certain exemptions to the provisions of Section 194H. The section is not applicable in the following cases:
- If the commission or brokerage is paid to an agent of the Reserve Bank of India or any other bank.
- If the commission or brokerage is paid to a mutual fund agent or a distributor of units of a mutual fund.
- If the commission or brokerage is paid to a sub-broker who is registered with the Securities and Exchange Board of India (SEBI).
- If the commission or brokerage is paid to a person who is exempt from paying income tax.
Consequences of Non-Compliance
Non-compliance with the provisions of Section 194H can attract penal consequences. If a person fails to deduct TDS or deducts TDS at a lower rate than the prescribed rate, he or she may be liable to pay a penalty of an amount equal to the amount of TDS that should have been deducted.
Conclusion
Section 194H of the Income Tax Act, 1961 is an important provision that regulates the deduction of TDS on commission or brokerage payments. It is important for businesses and individuals to comply with the provisions of the section to avoid any penal consequences. Understanding the provisions of Section 194H can help taxpayers to ensure compliance with the Income Tax Act and avoid any unnecessary legal hassles.
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Frequently Asked Questions (FAQs)
Q1. What is Section 194H of the Income Tax Act, 1961?
A1. Section 194H of the Income Tax Act, 1961 mandates the deduction of tax at source on commission or brokerage payments made to resident individuals.
Q2. Who is responsible for deducting tax at source under Section 194H?
A2. Any person responsible for making a payment of commission or brokerage to a resident person is required to deduct tax at source under Section 194H.
Q3. What is the rate of TDS under Section 194H?
A3. The rate of TDS under Section 194H is 5%. However, if the payee has provided his or her Permanent Account Number (PAN), the TDS rate will be 1%.
Q4. Is Section 194H applicable only to businesses?
A4. No, Section 194H is applicable to any person who makes commission or brokerage payments to a resident individual.
Q5. Is there any threshold limit for the applicability of Section 194H?
A5. Yes, Section 194H is applicable only if the payment of commission or brokerage to a resident person exceeds Rs. 15,000 in a financial year.
Q6. Are there any exemptions to the provisions of Section 194H?
A6. Yes, certain exemptions are available under Section 194H, such as payments made to agents of the Reserve Bank of India or any other bank, mutual fund agents, distributors of units of mutual funds, sub-brokers registered with SEBI, and persons exempt from paying income tax.
Q7. What are the consequences of non-compliance with the provisions of Section 194H?
A7. Non-compliance with the provisions of Section 194H can attract a penalty equal to the amount of TDS that should have been deducted.
Q8. Can a person claim a refund of excess TDS deducted under Section 194H?
A8. Yes, a person can claim a refund of excess TDS deducted under Section 194H by filing an income tax return.
Q9. Is Section 194H applicable to non-resident individuals?
A9. No, Section 194H is applicable only to resident individuals.
Q10. What is the time limit for depositing TDS deducted under Section 194H?
A10. TDS deducted under Section 194H must be deposited to the credit of the Central Government within seven days from the end of the month in which the deduction is made.
