Online TDS/TCS return filling and related compliance – (Analysis of Section 194H)
Introduction : In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure all the TDS and TCS compliance including filling of returns. In this article we will analyze section 194H of Income Tax Act, 1961 along with relevant illustration.
Which are the persons that are required to deduct TDS under section 194H?
Section 194H is applicable to any person who is responsible paying an amount as commission or brokerage to a resident, is require to deduct TDS. It shall be noted that if person paying commission (payer of commission) is Individuals and HUF than they will be liable to deduct TDS only in case where turnover/receipts of assessee is exceeding the specified limits i.e., Rs. 1 crore in case if entity is operating as business entity or Rs. 50lakhsin case of professionals. If Commission payable is in nature of insurance commission then TDS is deductible under section 194D and if commission is payable in respect of sale of lottery tickets than in that case TDS is deductible under section 194G. Both the above commission will not be covered under section 194H.
What if commission is paid to non-resident?
In case if commission is paid to non-resident than in that case section 195 will be applicable; as section 194H is applicable only is case if payment is made to resident.
What is the threshold limit and rate of deduction?
As per section 194H TDS is required to be deducted only in case where amount payable is exceeding Rs. 15,000/-. This is limit is per payer per annum; rate of deduction will be 5%.
Illustration: XY Ltd. paid Rs. 10,000/- as commission in August, 2020 to Mr. Rahu; after 2 months they again paid Rs. 6,000/- as commission in month September, 2020. Assessee is of the opinion that no TDS is deductible as in none of the transaction is exceeding limit. Determine whether TDS is deductible in such case?
Contention of assessee is not valid. It has been clearly specified that limit is per annum per payer and therefore, TDS will be applicable. The amount on which TDS will be applicable is Rs. 16,000/- as the limit is threshold limit and not exemption limit. The rate of deduction will be 5% and the amount that will be deducted as TDS will be Rs. 800/-.
What if above commission was paid to non-resident?
In case if above commission is paid to non-resident than in that case Section 195 of Income Tax Act, 1961 will be applicable; there is no exemption limit which has been specified under section 195and therefore TDS will be deducted on entire amount at effective rate as specified under finance act; increased by rate of health and education cess or rate which has been specified under double taxation avoidance agreement.
Can assessee reduce the rate of taxation?
Under section 194H it has been provided that applicable rate of tax will be 5%, however it shall be noted that assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197 by filling form-13.
What will be time when TDS is required to be deducted?
TDS will be required to be deducted at time of payment or crediting account of payee in books of payer whichever is earlier.
What if such amount is credited to suspense account?
In case even if amount is credited to suspense account or account of any name, than in that case it is considered as credited to account of payee and TDS will be required to be deducted at time of such credit.
Exemption that are required to be noted:
- In case amount is payable or paid by BSNL or MTNL in nature of commission or brokerage to their public call office franchisees than no TDS is required to be deducted.
- In case amount is paid in form of bank guarantee commission than no TDS is required to be deducted as it has been specified through cases law that; in such transaction no agent principal relation exists and therefore, there is no requirement to deduct TDS in such transaction.
What if commission is paid by employer to its employee?
In case if commission is paid employer to his employee in nature of employment than TDS will be deducted under section 192 of Income Tax, 1961; and not under 194H.
Whether TDS is deductible on GST amount?
It has been specified by the government that TDS will not be deducted on GST portion. i.e., if Invoice amount is Rs. 10,000/- and GST amount on such bill is Rs. 1,800/- then TDS will be deducted only on Rs. 10,000/-.
Illustration : XY Ltd. transferred goods worth Rs. 10,00,000/- in August, 2020 to one of its agent Mr. Sahu; after 2 months here limited Rs. 11,80,000 out of Rs. 12,00,000 (total consideration received by him) and he decided to retain remaining Rs. 20,000 as commission; XY Ltd. didn’t deducted TDS on such commission determining that the said has been retained by his agent and not paid him as commission; Determine whether TDS is deductible in such case?
The contention of XY Ltd. is not valid as it has been specifically clarified through a circular that assessee will be liable to pay TDS even in case where commission has been retained by agent and not actually paid by principal.
What if it is normal sale purchase transaction (i.e., Mr. Sahu is customer) and the above amount is discount amount?
In that case no TDS is to be deducted under section 194H as it will not fall under the preview of levy (i.e., it will be treated as ordinary sale purchase transaction.)
What if in same situation (as determined under illustration 1) Mr. Sahu an agent has remitted the entire amount after that his principal has provided him concession on next purchase or rebate?
In case if rebate has been paid to agent Mr. Sahu than such will be covered under section of 194H and will be treated as commission and TDS will be deducted.
On other side it may happen that principal is providing concession to agent on his next purchase instead of giving commission than in said case also it will be treated as commission an assessee being principle will be liable to deduct TDS.
This are all the questions relating to section 194H which may arise to assessee.