Here, we shall discuss TDS implications
on payments of the nature of Commission or Brokerage as per the Indian
Income Tax Act.
responsible for paying to a resident, any income by way of commission
(other than insurance commission) or brokerage shall deduct tax at
source there from.
Note: As per section 206AA, with effect from 1.4.2010, every person who
receives income subject to TDS under chapter XVIIB (covers all TDS
cases) shall furnish to the deductor, his PAN. If PAN is not so
furnished, the rate of TDS will be at the rates specified in the Act or
at the rates currently in force or at 20% whichever is higher. Please
note that this applies to non residents also.
liability to deduct Income tax at source is on any person except
individual and HUF. However, individual and HUF are also covered by
liability to deduct tax at source if their books are required to be
audited under section 44AB during the immediately preceding financial
year. [The turnover from business/profession exceeds the limits specified u/s 44AB during the financial year immediately preceding the financial year in which the commission or brokerage is paid or credited].
Ø Tax is to be deducted at source at the time of payment or credit whichever is earlier.
Ø Tax has to be deducted @10% w.e.f. 1-6-2007. [Previously 5%].
is no requirement of deduction of tax at source as per Indian Income
Tax Act if the aggregate amounts of commission or brokerage
paid/credited or likely to be paid/credited during the financial year
to the payee does not exceed Rs.5,000/-.
Ø No deduction shall be made by BSNL or MTNL to their PCO franchisees.
or Brokerage includes any payment received or receivable, directly or
indirectly, by a person acting on behalf of another person for services
rendered (not being professional services) or for any services in the
course of buying or selling of goods or in relation to any transaction
relating to any asset, valuable article or thing, not being securities.
Ø Discount availed by stamp vendors is not ‘commission’ or ‘brokerage’ - It is not possible to accept the contention of that the definition of “commission or brokerage” as contained in the Explanation
to section 194H is so wide that it would include any payment
receivable, directly or indirectly, for services in the course of
buying or selling of goods and that, therefore, the discount availed of
by the stamp vendors constitutes commission or brokerage within the
meaning of section 194H. If this contention were to be accepted, all
transactions of sale from a manufacturer to a wholesaler or from a
wholesaler to a semi-wholesaler or from a semi-wholesaler to a retailer
would be covered by section 194H. Thus, the discount made available to
the licensed stamp vendors under the provisions of the Gujarat Stamps
Supply and Sales Rules, 1987, does not fall within the expression
“commission” or “brokerage” under section 194H - Ahmedabad Stamp Vendors Association v. Union of India  257 ITR 202/124 Taxman 628 (Guj.)/
State Stamp Vendors Association v. Office of the Accountant General  150 Taxman 30 (Ker.).
of tax by airlines from its agent: Tax should be deducted at source
under section 194H on amount available to agents being difference
between air fare fixed by airlines and price at which agents are
enabled to sell tickets - Around the World Travels & Tours (P.) Ltd. v. Union of
India  141 Taxman 53 (Mad.)
- Commission to Wholetime Directors: In Jahangir Biri Factory (P) Ltd Vs. Dy. CIT (2009) 28 (II) ITCL 114 (Kol 'C' Trib), it was held that Commission paid to directors is not in the nature of commission or brokerage as envisaged in Section 194H.
- Discount given to distributors/franchisees on sale of SIM Cards and recharge coupons: In Vodafone Essar Cellular Limited Vs. Asst. CIT (2010) 332 ITR 255 (Ker), it
was held that the discount given at the time of sale of sim cards and
recharge coupons by the assessee to distributors was a payment received
or receivable by the distributor for services rendered to the assessee
and hence, it is covered under Section 194H.
Ø Turnover Commission payable by RBI to Agency Banks - Requirement
of tax deduction at source under section 194H is not applicable in
respect of Turnover Commission payable by the Reserve Bank of India to
the Agency Banks (Banks authorized for conducting Government business)
for performing the general banking business of the Central and State
Governments on behalf of RBI - Circular : No. 6/2003, dated 3-9-2003.
the commission or brokerage is retained by the agent/consignee and not
remitted to the principal/consignor while remitting the sale
consideration. In such a case, retention of commission/brokerage by the
agent/consignee amounts to constructive payment of the same to him by
the principal/consignor and TDS needs to be made from such amount.
Therefore, the principal/consignor shall have to remit TDS to the
credit of the central government within the prescribed time. [Circular
issue came up before Kolkata Bench of the Tribunal as to whether the
difference in purchase and sale price enjoyed by the distributors /
franchisees is to be treated as commission or discount by the assessee
who is in the business of cellular mobile telephone services.
Assessee company having treated the same as commission and deducted tax
under Section 194H discontinued such approach from July, 2002 and
treated the same as discount and not liable for any TDS
formalities. Assessing Officer (AO) rejected such contention and
treated the ‘assessee’ as ‘assessee in default’ and charged interest
under Section 201(1A) of the Income Tax Act, 1961. CIT (A) agreed
with assessee’s contention and held the same as discount which is not
liable for any TDS deduction under Section 194H. On an appeal to
the Tribunal it was held that the agreement between the assessee and
its distributors showed that the rights with the prepaid card at all
times vested in the assessee till they were sold to the
customers. Distributors / Franchisees have no liberty to tinker
with the ultimate price at which it is to be sold to the customer,
which was fixed by the assessee. In the case of principal to
principal, relationship the distributor will enjoy full freedom in
fixing the ultimate retail price within the maximum price level fixed
by the original vendor manufacturer. However, in the instant case
distributors have no independence to reduce their margins and sell at a
lower price than what is fixed by the assessee. In a normal
principal to principal situation one cannot control the other.
Assessee was not only holding ownership but also regulating the manner
of the business operations of the distributor. Hence, the margins
enjoyed by the distributors are to be treated as commission which is
liable for TDS under Section 194H and thereby AO’s action was
endorsed. ACIT Vs. Bharti Cellular Ltd (2007) 294 ITR (AT) 283 (Kolkata)
the transaction between the assessee-publishing newspaper and its sales
agents is on principal to principal basis, assessee is justified in not
effecting any TDS from discount given to
newspaper agents and charges/commissions retained by advertising agents
under section 194H, as commission paid to circulation agents is in the
nature of trade discount. CIT Vs. Samaj  77 ITD 358 (
All the information provided above is for informative purposes only.
You are advised to consult your tax consultant before you act upon any
of the above information. In spite of this, if any person acts upon
this information and suffers any loss, we are not to be held liable.
Though all efforts have been made to provide latest information, you
are advised to check latest circulars, latest changes in law etc from
the Indian Income Tax Department.
Other issues on Tax Deducted at Source : TDS on Commission
TDS on Interest other than interest on securities TDS On Contractors(194C) TDS on Other Sums TDS On Professional Fees (Sec 194J)
TDS on interest on Securities(193) TDS on Rent(194-I)
TDS on Salaries(192)
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