Liability to Deduct TDS on Payment of Commission or Brokerage

1. Meaning of ‘Commission or Brokerage’

It 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. [Professional services mean services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA. ‘Securities’ mean the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). To illustrate- Securities means shares, debentures, mutual fund units etc.]

Besides, Commission does not include ‘Insurance Commission’ referred to in Section 194D.

2. Liability to Deduct TDS

Any person (Companies, Trusts, Societies etc.) who is responsible for paying to a resident, any income by way of commission or brokerage, shall-

o at the time of credit of such income to the account of the payee, or

o at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier,

deduct income-tax thereon at the rate of five per cent.

The provision contemplates two events which trigger deduction of TDS on payment of Commission and requires deduction at the time of the event whichever is earlier in time. The events are actual payment of the Commission to the payee or at the time of booking or crediting the amount to the account of the payee. Therefore, at the time of closing of the books, if the account of the payee has already been credited but the payment is yet to be made, the TDS will nonetheless have to be deducted and deposited with the Income Tax Department within the time line laid down by the Act.

3. Exceptions

3.1 No deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed INR 15,000/-.

To illustrate- ABC Securities Pvt. Ltd. pays Rs. 15,000/- to ‘X’ as commission during the FY 2023-24. It also pays Rs. 20,000/- as Commission to ‘Y’ during the FY 2023-24. While ABC Securities will not be liable to deduct TDS out of the amount payable to ‘X’ but it will be liable to deduct TDS out of the amount payable to ‘Y’. If the company pays Commission or brokerage to multiple persons but the aggregate amount per person does not exceed Rs. 15,000/- in a FY, then the Company need not deduct TDS on any such transaction.

3.2 Payment made to Professionals are not to be treated as Commission or Brokerage.

3.3 Brokerage paid for purchase of securities is not liable for deduction of TDS under this provision.

To illustrate- ‘A’ purchases 1000 equity shares of Lemon Tree Hotels through Stock Broker Zerodha Securities Pvt. Ltd. and pays a certain amount of brokerage on the transaction. The amount paid towards brokerage is not liable for deduction of TDS.

4. When Payer/Deductor is an Individual or a Hindu Undivided Family

When the Deductor is an individual or a Hindu Undivided Family, the liability to deduct TDS arises only when the total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid.

The authors can be reached at office@shashankmangalandco.in.