TDS on Brokerage and Commission | Section 194H
TDS on Brokerage is a critical component of the Indian taxation system and an area that requires close attention for traders, brokers, and investors alike. The provisions of Section 194H of the Income Tax Act 1961, mandate the deduction of tax at source (TDS) on brokerage, making it an essential topic to understand. With the fast-paced growth of the Indian financial market, the importance of TDS in Brokerage has only increased, making it crucial for all stakeholders to stay abreast of the latest developments and regulations.
In this blog, we aim to take a comprehensive look at TDS on Brokerage as per Section 194H and provide you with a clear and concise guide to this complex topic. From the basics of Section 194H to the rates, and limits, this blog will provide you with all the information you need to stay compliant and make informed investment decisions. So, let's dive in and explore the world of TDS on Brokerage!
TDS on Brokerage- Overview
TDS on Brokerage refers to the tax that is deducted at source by the broker or intermediary on behalf of the investor or trader. The provisions of TDS on Brokerage are regulated by the Indian Income Tax Act, 1961, and governed by the provisions of Section 194H. According to this section, all brokers, intermediaries, or agents who earn brokerage or tds commission income over the specified limit are required to deduct tax at the source before making payment to the recipient.
Its purpose is to ensure that the tax owed on brokerage or commission income is collected at the time of payment rather than at the time of filing tax returns. The TDS deducted on brokerage is then credited to the government, and the investor or trader is entitled to claim a credit for the same while filing their tax returns.
What is Section 194H?
Section 194H of the Income Tax Act, 1961, governs the provisions of TDS on Brokerage and Commission. As per this section, any person who is responsible for paying brokerage or commission income to a resident is required to deduct tax at source and pay the same to the government. The TDS deducted under Section 194H is then credited to the government, and the recipient of the brokerage or commission income can claim a credit for the same while filing their tax returns.
It is important to note that individuals and Hindu Undivided Families who are covered under Section 44AB are also required to deduct TDS on commission or brokerage income. Additionally, from the financial year 2020-21, individuals and Hindu Undivided Families with a turnover from business exceeding Rs. 1 crore or gross receipts from a profession exceeding Rs. 50 lakh are also required to deduct TDS on brokerage or commission income.
194h TDS Rate
The normal rate of TDS under Section 194H is 5% of the brokerage or commission income paid. However, during the period from 14 May 2020 to 31 March 2021, the rate of TDS was reduced to 3.75%.
It is important to note that no surcharge, education cess, or SHEC (Secondary and Higher Education Cess) shall be added to the TDS rate mentioned above. Therefore, the tax cost will be deducted at the source at the normal rate.
In case the deductee does not quote their PAN (Permanent Account Number) at the time of receiving the brokerage or commission income, the rate of TDS will be 20% in all cases.
194h TDS Limit
As per Section 194H of the Income Tax Act, the person responsible for deducting TDS on commission or brokerage income is required to deposit the same with the government within a specified time period. The TDS deducted from April to February must be deposited on or before the 7th of the following month.
For example, if TDS is deducted on 25 April, it must be deposited on or before 7th May. However, for March, the TDS must be deposited on or before 30th April. For example, if TDS is deducted on 15 March, it must be deposited on or before 30 April.
It is important to comply with these deadlines to avoid any interest or penalty for a late deposit of TDS.
In conclusion, TDS on Brokerage and Commission as per Section 194H is a critical aspect of the Indian taxation system that requires close attention and careful compliance. By understanding the provisions of this section, investors, traders, and brokers can stay ahead of the game and avoid any potential legal or financial consequences. The role of compliance services in ensuring compliance with TDS on Brokerage and Commission cannot be overemphasized.
From providing expert guidance on the latest regulations to handling the complicated TDS process, compliance services play a vital role in helping taxpayers stay compliant and secure their financial future. With the ever-changing financial market and tax laws, having access to reliable and knowledgeable compliance services has never been more important. So, if you're looking to stay compliant and make informed investment decisions, it's time to invest in quality compliance services. Get in touch with us, at J.R. Compliance today to learn more!