What is Section 194H?
Section 194H like its name suggests is for any payee who is responsible for paying to a resident, defined as the amount of income tax incurred on any income through services of brokerage or commission.
Sectors like HUF (Hindu Undivided Family) or individuals who come under section 44 AB need to deduct tax deducted at source or TDS too. If in any case, the gross receipts from the profession are more than 50 lac rupees or business is upward of 1 crore rupees, HUF and individuals are also required to deduct TDS. This is with effect from the financial year 2020-21. Section 194H does not cover the insurance commission as stated in the 194D section.
The recurring terms of services called brokerage or commission include the payments that are deemed receivable/received, indirectly/directly, by an individual acting in place of another individual:
(a) for services that are rendered (except professional services), or
(b) for the services involved in selling or buying of goods, or
(c) for a transaction relating to any valuable thing/article, asset, except security.
When does TDS need to be deducted under Section 194H?
Tax Deducted at Source under Section 194H shall be deducted during the time of credit of relevant income into the a/c of the payee or to another a/c. This can be done by an account regardless of whether the name is suspense account or anything else, of relevant income by way of draft/cheque or just cash.
When is TDS under Section 194H not deductible?
No amount deduction will be made under section 194H in cases in which the aggregate amounts of relevant income or the amount to be paid or credited during that FY does not go beyond 15,000 rupees. The individual in question can render an application to the officer responsible for assessment pertaining to deduction of tax at a lower or NIL rate (under section 197).
Rate of TDS under Section 194H
The rate of TDS is 5 per cent (i.e., 3.75 per cent with effect from the year 2020 to the year 2021). Cess (Health & Education liability tax) @ 4% & no particular surcharge will be added to the above taxation rates. Thus, the tax will be deducted at the basic rate from source. A rate of 20% TDS will be levied in those cases where PAN is not quoted by the deductee.
What is the TDS rate for contractors?
| Particulars | TDS Rates (When PAN is Available) | TDS Rate (When PAN isn’t Available) |
| Payment to a HUF or individual | 1% | 20% |
| Payment to a person except for a HUF or an individual | 2% | 20% |
| Payment or credit to transporters | Nil | 20% |
Who is responsible to deduct tax u/s 194H?
Any person, (other than a Hindu undivided family or an individual) who is responsible for payment to a resident, any income by means of the amount of brokerage or commission (except commission pertaining to insurance as stated in section 194D) will deduct income tax thereon.
However, a Hindu United Family or an individual is liable to be charged TDS under section 194H, if ever their total gross, sales turnover or receipts go beyond 50 lakh rupees in case of profession or 1 crore rupees in a business at the time of the financial year (FY) immediately preceding the FY in which this relevant amount of commission is paid or credited.
FAQs about Section 194h
When to deduct TDS under Section 194H?
TDS under Section 194H shall be deducted during the time of credit of relevant income into the a/c of the payee or to another a/c. This can be done by an account regardless of whether the name is suspense account or anything else, of relevant income by way of draft/cheque or just cash.
What is TDS at a lower rate?
The individual in question from whom tax is deducted (or the deductee) can render an application to the officer responsible for assessment pertaining to deduction of tax at a lower or NIL rate (under section 197).
Are income from Travel Agents levied by TDS under 194h?
Commission and supplementary commission received by the travel agents from Airlines are liable to tax deduction at source under section 194H.
