{tocify} $title={Table of Contents}
TDS Under Section 194H: A Comprehensive Guide with Latest Updates
If you're a business owner, freelancer, or professional in India, understanding Tax Deducted at Source (TDS) provisions is crucial. One such provision is Section 194H of the Income Tax Act, which deals with TDS on commission and brokerage payments. Recent amendments have brought significant changes to this section, effective from April 1, 2025. This article aims to simplify these updates and provide clarity on their implications.
What is Section 194H?
Section 194H mandates the deduction of TDS on any income by way of commission or brokerage (excluding insurance commission covered under Section 194D) paid to a resident. This ensures that tax is collected at the source of income generation, facilitating better tax compliance.
Applicability of Section 194H
TDS under Section 194H applies when:
- A person (other than an individual or Hindu Undivided Family not liable for tax audit) pays commission or brokerage exceeding the specified threshold to a resident.
- The payment is not covered under any other specific TDS section.
It's important to note that individuals and HUFs are required to deduct TDS under this section only if their total sales, gross receipts, or turnover from the business or profession exceed the monetary limits specified under Section 44AB in the preceding financial year.
Latest Updates Effective from April 1, 2025
The Union Budget 2025 introduced key changes to Section 194H:
- Revised TDS Rate: The TDS rate has been reduced from 5% to 2% for payments made on or after October 1, 2024.
- Increased Threshold Limit: The threshold for TDS deduction has been increased from ₹15,000 to ₹20,000 per financial year, effective April 1, 2025.
These changes aim to ease the compliance burden on small businesses and individuals receiving commission or brokerage income.{alertInfo}
Understanding the Threshold Limit
The threshold limit refers to the minimum amount of commission or brokerage payment in a financial year beyond which TDS must be deducted. As per the latest update:
- Threshold Limit: ₹20,000 per financial year (effective from April 1, 2025).
If the total commission or brokerage paid during a financial year does not exceed ₹20,000, no TDS deduction is required under Section 194H.
TDS Rate Under Section 194H
The applicable TDS rates under Section 194H are:
- Standard Rate: 2% (for payments made on or after October 1, 2024).
- Higher Rate Without PAN: 20% (if the payee does not furnish their Permanent Account Number).
It's essential for payees to provide their PAN to avoid higher TDS deductions.
When to Deduct TDS
TDS under Section 194H should be deducted at the earlier of the following:
- At the time of credit of such income to the account of the payee.
- At the time of payment in cash or by issue of a cheque or draft or by any other mode.
This ensures timely tax collection and compliance with the provisions of the Income Tax Act.
Exemptions and Special Cases
Certain payments are exempt from TDS under Section 194H:
- Personal Payments: Payments made by individuals or HUFs for personal purposes are not subject to TDS.
- Payments to Non-Residents: Section 194H applies only to payments made to residents. Payments to non-residents are governed by Section 195.
- Insurance Commission: Payments covered under Section 194D are excluded from Section 194H.
It's crucial to assess the nature of the payment to determine the applicability of TDS under this section.
Compliance Requirements
To comply with Section 194H provisions:
- TAN Registration: Obtain a Tax Deduction and Collection Account Number (TAN) if not already registered.
- Issue TDS Certificates: Provide TDS certificates (Form 16A) to the payees within the stipulated time frame.
- TDS Deduction: Deduct TDS at the applicable rate when making commission or brokerage payments exceeding the threshold limit.
- Deposit TDS: Deposit the deducted TDS to the government's account within the specified due dates.
- File TDS Returns: Submit quarterly TDS returns (Form 26Q) detailing the deductions made.
Adhering to these steps ensures compliance and avoids penalties.
FAQs on TDS Under Section 194H
What is the revised threshold limit for TDS under Section 194H?
The threshold limit has been increased from ₹15,000 to ₹20,000 per financial year, effective April 1, 2025.
What is the current TDS rate under Section 194H?
The TDS rate has been reduced to 2% for payments made on or after October 1, 2024.
Is TDS applicable if the commission payment is below ₹20,000?
No, if the total commission or brokerage paid during a financial year does not exceed ₹20,000, TDS under Section 194H is not applicable.
What happens if the payee does not provide their PAN?
In the absence of PAN, TDS must be deducted at a higher rate of 20% as per Section 206AA.
Are individuals and HUFs required to deduct TDS under Section 194H?
Individuals and HUFs are required to deduct TDS under Section 194H only if their total sales, gross receipts, or turnover from the business or profession exceed the monetary limits specified under Section 44AB in the preceding financial year.
Is TDS under Section 194H applicable to payments made to non-residents?
No, Section 194H applies only to payments made to residents. Payments to non-residents are governed by Section 195.
What is the due date for depositing TDS deducted under Section 194H?
TDS deducted in a particular month must be deposited to the government's account by the 7th of the following month.
Can the payee apply for a lower or nil TDS deduction?
Yes, the payee can apply for a certificate under Section 197 for lower or nil TDS deduction by submitting Form 13 to the Income Tax Department.
Understanding the provisions of Section 194H and staying updated with the latest changes is essential for ensuring compliance and avoiding penalties. The recent amendments aim to simplify the tax process and reduce the burden on small businesses and individuals. Always consult with a tax professional for personalized advice