TDS on commission

If you're in any commission-dependent business, you should possess knowledge of TDS On Commission and all the intricacies it might entail. This type of TDS (tax deducted at source) is levied almost exclusively upon individuals that deal in commissions and brokerage.

Here, we offer a detailed explanation of all the points that might concern this particular taxation niche as much as possible.

What is TDS?

TDS is a component of income tax paid by all taxpayers, regardless of the tax bracket. It is paid by the individual or organisation receiving payment in exchange for a service; it could be a salary, professional fees, interest, or a commission.

In the usual income tax collection process, the person receiving the income is liable to pay the income tax. However, in this case, the government retrieves the TDS from the party making the payment. Through tax deducted at source provisions, the government ensures that income tax is deducted in advance from payments made by you. It ranges from as low as 0.5% to 10% of the total income (depending on the type and tax bracket). You will then be able to add the TDS as a liability when you pay your income tax and show it when assessing final tax liability.

TDS is required to be deducted at the time of payment by anyone making specified payments, as defined in the Income Tax Act. On the other hand, TDS is not required to be deducted if the payer is an individual or a HUF (Hindu Undivided Family) whose books are not required to be audited.

Individuals and HUFs are required to deduct TDS at a rate of 5% on rent payments over Rs. 50,000 per month, even if they are not subject to a tax audit. Individuals and HUFs who are required to deduct TDS On Commission at a rate of 5% are exempt from applying for TAN. Your employer deducts TDS at the applicable income tax slab rates. Banks deduct TDS at a rate of 10%. If they do not have your PAN, they may deduct it at a 20% rate.

Let’s study an example to understand the concept better:

Abbott Pvt Ltd pays the property’s owner Rs. 80,000 per month in office rent. TDS is required to be deducted at a 10% rate. Abbott Pvt ltd is required to deduct Rs 8,000 in TDS On Commission and pay the remaining Rs. 72,000 to the property owner. Thus, after deducting tax at source, the recipient of income, which in this example is the owner of the property, receives a net amount of Rs. 72,000. He will add the gross amount, Rs. 80,000, to his income, and will deduct the amount already deducted by Abbott Pvt Ltd, i.e., Rs. 8,000, from his final tax liability.

As seen in this example, it is not easy to handle all this taxation without proper financial accounting. OkCredit is a financial accounting service that helps you focus on your growth as a business agent while managing all your monetary woes.

What is Section 194H?

Section 194H governs any income tax collected on commission and brokerage income by any person responsible for paying said commission to an Indian resident.

Individuals and HUFs are also required to deduct TDS under Section 44AB. Individuals and HUFs with a business turnover of more than Rs 1 crore or gross receipts from a profession of more than Rs. 50 lakh will be required to deduct TDS beginning in the fiscal year 2020-21.

TDS is deducted under Section 194H when such income is credited to the payee’s or any other account.

What can be called commission or brokerage?

The government receives TDS through many channels. So, strict rules govern the classification of the various niches it lists.

Commission or brokerage may include any payment:

• Receivables or that which can be received,
• Either directly or indirectly, or
• By someone acting on behalf of another

TDS on commission or brokerage can include:

• Except securities, for services rendered (other than professional services),
• Or for any services rendered in the course of buying or selling goods,
• Or in connection with any transaction involving any asset, valuable article, or thing.

People mistakenly believe that presumptive taxation applies to commission income, but this is not the case. Presumptive taxation for businesses is addressed in Section 44AD of the Income Tax Act. Presumptive taxation is available to any company with a turnover of less than Rs. 2 crores. They must report profits of 8% on non-digital transactions or 6% on digital transactions, whichever is greater.

TDS on commission is currently at a rate of 5%. The rate is 3.75% for transactions between 14 May 2020 and 31 March 2021. The rates mentioned above will not be subject to a surcharge, education cess, or SHEC (Secondary and Higher Education Cess). As a result, at the point of sale, the basic rate of tax will be deducted. If the deductee fails to provide PAN, the TDS rate will always be 20%.

There is no deduction under this section if the total amount of such income credited or paid during the fiscal year does not exceed Rs. 15,000.

Individuals may apply to the assessing officer for a tax deduction at the NIL rate or a lower rate under Section 197.

The deductee, the person whose tax is deducted, may apply to the assessing officer under Section 197 for a tax deduction at zero or a lower rate. Here’s how this can be achieved:

• Submit a Section 197 certificate to validate the deductee’s PAN.
• The certificate must be valid for the PAN, section, rate, and fiscal year specified in the filed statement.
• Check to ensure that the certificate’s threshold limit has not been reached in previous quarters.
• The correct certificate number should be included in the statement.

Conclusion

Your total taxable income would be used to determine your tax liability. Based on the taxes calculated, you can claim credit for TDS deducted on your various receipts. Subtract the tax deducted at source from your actual tax liability to determine the balance to be paid to the income tax department. You should be vigilant about any unfair TDS deductions and bring them to the attention of the income tax department immediately or apply for a lower TDS rate.

FAQs

Q. What happens if TDS is not submitted?

Ans. A penalty is levied on the company for not submitting its TDS liability. And interest payment has to be paid the next submission time.

Q. What is the average TDS rate for commission or brokerage?

Ans. The average TDS rate for any commission or brokerage is 5%.

Q. Can TDS be refunded?

Ans. Yes, If you paid more TDS than what was due to the government, a refund can be initiated for the amount you paid more than the required threshold.