TDS on Commission and Brokerage.

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501
section-194h

Section – 194H

Payer : Any person However an Individual and HUF, whose total sales, gross receipts or turnover from the business or profession carried on by him do not exceed the monetary limit of ₹ 1 crore and ₹ 50 Lakhs, respectively, specified under section 44AB during the immediately preceding financial year is not liable to deduct tax at source.

Payee : Any person resident

Rate : 5%

Limit :Amount> ₹ 15,000 p.a.

Nature of payment : Commission or Brokerage other than those commissions, which are referred to in sec. 194D (Insurance commission) & sec.194G (Lottery commission).

Provisions simplified

  1. “Commission” means any amount received or receivable for acting on behalf of another person, for rendering any services other than professional services or any service in relation to buying or selling of goods or in relation to any transactions relating to any asset or any valuable article or a thing, other than ‘Securities’.

  1. Authorised Banks receive turnover Commission from RBI for collection of Tax on behalf of Government. It has been clarified that no tax shall be deducted u/s. 194H from such Turnover Commission.

  1. Commission to employee and employee directors will form part of a salary income and liable to TDS u/s.192.

  1. Any transactions related to securities are not covered by section 194H. Therefore, section 194H is not applicable on ;
  • Brokerage and commission paid to underwriters.
  • Brokerage and sub-brokerage on public issue of securities.
  • Brokerage on stock exchange transactions of securities.

  1. A question may arise whether there would be TDS u/s. 194H where the commission or brokerage is retained by the consignee/ agent and NOT remitted to the consignor/principal while remitting the sale consideration. It may be clarified that since the retention of the commission by the consignee/agent amounts to constructive payment, TDS would be applicable. Practically, in such cases, the consignee/agent shall also remit the TDS component on his commission or brokerage along with the sale consideration.

 

  1. Commission vs. Discount :One needs to check the difference between commission and discount. TDS is NOT deductible in case of discount, but is deductible in case of commission.
Relation – Principal to principal

 

Discount

 

When goods with distributor – ownership of distributor

Relation – Principal to agent Commission

 

 

When goods with distributor – ownership of Principal

 

  1. Ahmedabad stamp Vendors Association(2012)(SC) –Stamp vendors take the stamps from court at a lower value and give it to the people at the value engraved in the stamp. It was held that the margin of the stamp vendors was NOT their commission, but was discount given to them by the court as the stamp vendors deal on principal to principal basis.

 

  1. At the time SIM was available with the distributors, the ownership of the same with the assesse (Vodafone). Thus, there was a principal and agent relationship between the assesse and the distributors. Thus, in the facts of the case, the margin of distributor was a commission; and TDS was required to be deducted u/s. 194H.[Bharti Cellular Ltd. (2013)(Cal.); Vodafone Essar Ltd. (2011)(Ker.)]

 

  • Assesse – airlines company sold tickets to agent at a price below MRP quoted in tickets however, agents were allowed to sell the tickets at the price fixed by them, which was to be bellowed MRP. Whether the difference between the MRP and the price at which the tickets were sold to agents was to be treated as additional commission? It was held that same cannot be treated as additional commission as airlines company was NOT aware about the exact price at which the tickets would be sold by the agent. [CIT vs. Qatar Airways (2011)(Bom.)]

 

  1. Assesse provide incentives to distributors/stockists for achieving selling targets. Credit notes were distributors or stockists on achieving selling targets. It was held that the distributors or stockists were acting on principal to principal basis and therefore the incentives could NOT be regarded as commission.[CIT vs. Intervet India P Ltd.(2014)(Bom.)]

  1. Whether payments made by television companies or newspapers etc, to commission agents as commission or brokerage for canvassing or procuring advertisement is liable for TDS u/s. 194H? Accepting the judgement in Jagaran Prakashan (All.), it was stated in Circular No. 05/2016 dated 29/02/2016 that no TDS is required to be deducted.

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