IS TDS Under Section 194H on Commission Troublesome ?- Here are the Key Insights & Recent Updates

TDS under Section 194H of the Income Tax Act is applicable on payments made by a business or individual for commission or brokerage. Here’s a breakdown of the key provisions of Section 194H:

  1. Rate of TDS:
  • The TDS rate on commission or brokerage under Section 194H is 5%.
  • If the payee (recipient) has not provided their PAN, the TDS rate will be 20%.
  1. Threshold Limit:
  • TDS under Section 194H is applicable only if the total payment to a payee exceeds ₹15,000 in a financial year.
  1. Who is Liable to Deduct TDS?
  • Any individual or entity (other than individuals and HUFs not subject to tax audit under Section 44AB in the preceding financial year) paying commission or brokerage must deduct TDS.
  • Individuals and HUFs are also required to deduct TDS if their gross receipts or turnover exceed the limit specified under Section 44AB (tax audit) in the previous year.
  1. Exemptions:
  • TDS is not applicable if the payment is made by an individual or HUF whose turnover is below the tax audit limit.
  • No TDS is applicable on commission or brokerage relating to insurance.
  1. Definition of Commission/Brokerage:
  • Commission or brokerage refers to any payment received for services provided (other than professional services) or for any transaction relating to the purchase or sale of goods, assets, or services.
  1. Due Date for Payment and Filing:
  • The deducted TDS must be deposited with the government by the 7th of the following month.
  • TDS returns must be filed quarterly in Form 26Q.
  1. Penalties for Non-Compliance:
  • Interest: 1% per month for late deduction and 1.5% per month for late deposit of TDS.
  • Penalty: Equal to the amount of TDS not deducted or deposited under Section 271C.

 

RECENT UPDATES

As per the Union Budget 2024, the TDS rate for payments under Section 194H, along with certain other sections (194DA, 194-IB, and 194M), has been reduced from 5% to 2%. This change is aimed at easing the compliance burden for individuals and businesses while ensuring more efficient tax collection at lower rates.

Key Points:

  1. TDS Rate: Reduced to 2% from 5%.
  2. Threshold: Applicable if the commission or brokerage exceeds ₹15,000 annually.
  3. Applicability: On income from commission or brokerage, excluding insurance commissions.

This reduction in TDS rates is expected to improve cash flow for recipients while maintaining tax compliance.

 

LedgerVision’s TDS Scrutiny is one of its standout features, offering users hassle-free reports on TDS compliance. It generates detailed reports that cover:

  1. Party-wise Reports: Breakdown of TDS compliance by party.
  2. Expenditure-wise Reports: Analysis of TDS across different expense categories.
  3. TDS Category-wise Reports: Detailed categorization of TDS based on various sections under the Income Tax Act.

LedgerVision automatically detects common errors such as:

  • Short Deduction of TDS: Identifies when less TDS has been deducted than required.
  • Non-Deduction of TDS: Flags instances where TDS has not been deducted at all.
  • Excess Deduction of TDS: Spots when too much TDS has been deducted.
  • TDS Deducted but Not Required: Captures cases where TDS was deducted even though it wasn’t required by law.

It also calculates and highlights disallowances under Section 40(a)(ia), helping users avoid non-compliance penalties. Furthermore, LedgerVision includes Clause 34A reporting, essential for the Tax Audit Report, providing the required TDS details in an accurate and timely manner.

This makes LedgerVision a powerful tool for managing TDS compliance, ensuring accuracy, and reducing risks of penalties.

Takeaway

The TDS on commission under Section 194H is a critical compliance requirement. Recent updates indicate a broader application in the digital and e-commerce sectors. Ensuring compliance will not only avoid financial penalties but also demonstrate strong governance in financial operations. LedgerVision is updated to take care of recent updates.