Section 194H of ITA, 1961 : Section 194H: Commission Or Brokerage

Explanation using Example

Imagine a company, XYZ Pvt. Ltd., that sells products through various agents. These agents are paid a commission for the sales they generate. If one of the agents, Mr. A, generates sales leading to a commission of ₹20,000 in a month, XYZ Pvt. Ltd. must deduct income tax at the rate of 5% from Mr. A's commission because the amount exceeds the threshold of ₹15,000 for the financial year. This means Mr. A will receive ₹19,000 after a tax deduction of ₹1,000 (which is 5% of ₹20,000).

However, if the total commission Mr. A was to receive in a year did not exceed ₹15,000, XYZ Pvt. Ltd. would not have to deduct tax at source on the commission paid to him.

Additionally, if XYZ Pvt. Ltd. were a small business owned by an individual or a Hindu undivided family (HUF) and did not exceed the turnover limits under section 44AB, they would not be required to deduct tax. But if their turnover was higher, they would be obligated to deduct tax on the commission paid.

Finally, if the commission was being paid by Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL) to their public call office franchisees, no tax deduction at source (TDS) would apply as per the exception provided.