TDS on Commission or TDS on brokerage
Provision regarding TDS on Commission or brokerage is provided in Section 194H of Income tax Act
After Finance Act 2016
Salient Features of TDS on Commission or TDS on brokerage
- Threshold limit for TDS on Commission or TDS on brokerage under Section 194H of Income Tax Act
If Commission or brokerage or the aggregate of the amounts of Commission or brokerage credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee exceed below limits than TDS has to be dedcuted u/s 194H.
prior to 1-6-2016 (Rs.) Rs 5000
on or after 1-6-2016 (Rs.) Rs 15000
- Revision in rates of TDS on commission or TDS on brokerage (After Finance Act 2016)
TDS on Commission or TDS on brokerage u/s 194H has to be deducted at the following rate:-
prior to 1-6-2016 (Rs.) @ 10%
on or after 1-6-2016 (Rs.) @ 5%
- TDS on Commission or TDS on brokerage under section 194H to be deducted by any person Other than an individual or a Hindu undivided family.
- In case of individual or a Hindu undivided family,TDS on Commission or brokerage to be deducted whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid
- TDS on Commission or brokerage is to be deducted u/s 194H on any income by way of commission (not being insurance commission referred to in section 194D) or brokerage
- TDS on Commission or brokerage is to be deducted u/s 194H at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier
- NO TDS u/s 194H on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
TDS on Commission or brokerage : Section 194H of Income Tax act
Commission or brokerage [ section 194h ]
194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent [w.e.f 01.06.2016 @5% as per Finance Act 2016] :
Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed five thousand rupees [ w.e.f 01.06.2016 Rs 15000 as per Finance act 2016]
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section:]
Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
Explanation.—For the purposes of this section,—
i) “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
ii) the expression “professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;
iii) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)
iv) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly
TDS on Commission or brokerage : issue of applicability of TDS provisions on payments made by television channels or media houses publishing newspapers or magazines to advertising agencies
CIRCULAR NO.5/2016 [F.NO.275/06/2016-IT(B)], DATED 29-2-2016
The issue of applicability of TDS provisions on payments made by television channels or media houses publishing newspapers or magazines to advertising agencies for procuring and canvassing for advertisements has been examined by the Board in view of representations received in this regard.
2. It is noted that there are two types of payments involved in the advertising business:
|(i)||Payment by client to the advertising agency, and|
|(ii)||Payment by advertising agency to the television channel/newspaper company|
The applicability of TDS on these payments has already been dealt with in Circular No. 715 dated 8-8-1995, where it has been clarified in Question Nos. 1 & 2 that while TDS under section 194C (as work contract) will be applicable on the first type of payment, there will be no TDS under section 194C on the second type of paymente.g. payment by advertising agency to the media company.
3. However, another issue has been raised in various cases as to whether the fees/charges taken or retained by advertising companies from media companies for canvasing/booking advertisements (typically 15% of the billing) is ‘commission’ or ‘discount’. It has been argued by the assessees that since the relationship between the media company and the advertising company is on a principal-to-principal basis, such payments are in the nature of trade discount and not commission and, therefore, outside the purview of TDS under section 194H. The Department, on the other hand, has taken the stand in some cases that since the advertising agencies act on behalf of the media companies for procuring advertisements, the margin retained by the former amounts to constructive payment of commission and, accordingly, TDS under section 194H is attracted.
4. The issue has been examined by the Allahabad High Court in the case of Jagran Prakashan Ltd. and Delhi High Court in the matter of Living Media Limited and it was held in both the cases that the relationship between the media company and the advertising agency is that of a ‘principal-to-principal’ and, therefore, not liable for TDS under section 194H. The SLPs filed by the Department in the matter of Living Media Ltd. and Jagran Prakashan Ltd have been dismissed by the Supreme Court vide order dated 11-12-2009 and order dated 5-5-2014, respectively. Though these decisions are in respect of print media, the ratio is also applicable to electronic media/television advertising as the broad nature of the activities involved is similar.
5. In view of the above, it is hereby clarified that no TDS is attracted on payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements. It is also further clarified that ‘commission’ referred to in Question No.27 of the Board’s Circular No. 715 dated 8-8-1995 does not refer to payments by media companies to advertising companies for booking of advertisements but to payments for engagement of models, artists, photographers, sportspersons, etc. and, therefore, is not relevant to the issue of TDS referred to in this Circular.
TDS on Commission or brokerage :Clarifications regarding Turnover Commission payable by RBI to Agency Banks
CIRCULAR NO. 6/2003, DATED 3-9-2003
The work of receipt of tax payments and issue of refunds is conducted by the Banks authorized for such purposes by the Reserve Bank of India (RBI). As a compensation for the work so conducted, the Central Government pays to the Banks, through RBI, commission termed as “Turnover Commission”.
It has been represented to the Board that the requirement of tax deduction at source under section 194H should not be applicable in respect of Turnover Commission payable by the Reserve Bank of India to the Agency Banks (Banks authorized for conducting Government business) for performing the general banking business of the Central and State Governments on behalf of RBI.
The matter was considered in the Board and it has been decided that tax would not be required to be deducted by RBI on the amount of Turnover Commission paid or credited by it.
TDS on Commission or brokerage : Supplementary commissions received by the travel agents from Airlines
LETTER F.NO. 275/70/2009-IT(B), DATED 22-12-2009
In the case of Around the World Travels & Tours (P.) Ltd. v. Union of India  141 Taxman 53 (Mad.), it was held that tax should be deducted at source under section 194H on amount available to agents being difference between airfare fixed by Airlines and price at which agents are enabled to sell tickets, vide order dated 2nd October, 2009 the High Court of Madras. The above decision of the Madras High Court has been further reinforced by the decision of Hon’ble High Court of Delhi in the case of CIT v. Singapore Airlines Ltd.  180 Taxman 128 in which it has been held that commissions and supplementary commissions received by the travel agents from Airlines are liable to tax deduction at source under section 194H and in case of default the mandatory interest under section 201(1A) is leviable. The above decision of High Court is circulated for kind information and necessary action at your end.
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