Section 194H of Income Tax Act 1961
Tax is required to be deducted under section 194H by person paying commission or brokerage above Rs 15000.
Individual or HUF whose gross receipts or turnover does not exceeds 1 crore or 50 lakhs in case of business or profession is not to deduct TDS under section 194H.
Rate at which TDS is required to be deducted is 5%.
TDS is required to be deducted at the time of payment or at the time of credit to the account of payee whichever is earlier.
“Commission or brokerage” includes any payment made in relation to purchase or sale of goods or services or any asset, valuable article or thing except securities to a person acting on behalf of the other as an intermediary in relation to the abovementioned transactions.
Discount
As per the views taken in case Commissioner of Income-tax v. Ahmedabad Stamp Vendors Association. the guiding factor which actually decides that whether commission has been given or discount is the transfer of ownership.
Business concern offers discount to dealers on purchase price and it is often offered to those dealers who are purchasing goods from that business entity, such payment would merely represent a discount or rebate given on purchase price. When the dealer is purchasing goods on outright basis and ownership has been transferred, then question of commission do not arises. On the contrary, if goods are sold on principal to agent basis and the entire ownership is still with the principal then such discount given may be considered as commission.
Cash Discount
As a business/industry practice, a cash discount is given to persons who make an advance/prompt payment of cash consideration for the goods purchased. Such discount is, therefore, given only to those dealers who purchase the goods from a business concern for further sale on their own and makes the advance payments or the make payments within stipulated period of time agreed upon earlier.
As per the view in case of Foster’s India (P.) Ltd. v. Income tax officer, cash discount is paid on an outright sale of products, the discount cannot be held as a commission and hence there is no requirement of withholding tax on such payment.
Conclusion
Thus section 194H would apply only if principal agent relation exists.
