TDS on Commission and Brokerage
Introduction
TDS under Section 194H is applicable at a rate of 2% on commission or brokerage (excluding insurance commission) if the amount exceeds Rs. 20,000 in a financial year.
Key Provisions
- Deductor:
o Any person making such payments, except individuals and HUFs.
o Individuals and HUFs must deduct TDS if their business turnover exceeds Rs. 1 crore or professional receipts exceed Rs. 50 lakh in the preceding financial year.
- Deductee:TDS applies only if the recipient is a resident. For non-residents, tax is deducted under Section 195.
- Rate of TDS:2%.
o Higher rates apply under Section 206AA if PAN is not provided.
- Time of Deduction:At the time of payment or credit, whichever is earlier, including when credited to a suspense account.
Exemptions from TDS
- Payments by BSNL/MTNL:No TDS on commissions paid to public call office franchisees.
- Turnover Commission to Banks:No TDS on commissions paid by RBI to banks for tax collection/refund issuance. [Circular No. 6/2003, dated September 3, 2003]
- Advertising Agency Fees:No TDS on payments by media companies to agencies for ad bookings. [Circular No. 5/2016, dated February 29, 2016]
- Government Payments:No TDS on payments to the government, RBI, mutual funds, or tax-exempt corporations.
- Payment to specified IFSC units:Certain commissions and brokerage payments to specified IFSC entities are exempt, subject to Form 1 compliance. [Notification No. 28/2024, dated 07-03-2024, and Notification No. 67/2025, dated 20-06-2025]
Compliance Requirements
- Lower/Nil Deduction Certificate:Available under Section 197; self-declarations under Section 197A are not permitted.
- Deposit of TDS:
o Payment through Challan ITNS 281 within 7 days from the end of the deduction month.
o For March deductions, deposit by 30th April.
o Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Statement Filing:Quarterly submission in Form 26Q.
- TDS Certificate:Form 16A to be issued within 15 days from the due date of TDS statement filing.
Consequences of Non-Compliance
- Failure to Deduct or Deposit:Liable for interest under Section 201, penalty under Section 271C (up to the undeducted amount), and prosecution under Section 276B.
- Failure to File TDS Statement:Liable for a Rs. 200 per day penalty (limited to TDS amount) under Section 234E and additional penalties under Sections 271H and 272A.
- Failure to Issue TDS Certificate:Liable for penalties under Section 272A.