TDS to be deducted against Commission payments
| Nature of Payment | Old Section | New Provision | Section Code | Rate | Threshold |
|---|---|---|---|---|---|
| Insurance commission | 194D | 393(1), Table 1(i) | 1005 | 2% | ₹20,000 |
| Commission on lottery tickets | 194G | 393(3), Table 4 | 1063 | 2% | ₹20,000 |
| Commission / brokerage – other than insurance | 194H | 393(1), Table 1(ii) | 1006 | 2% | ₹20,000 |
1. Insurance Commission (Section 393(1), Table Sl. No. 1(i)):
TDS applies to commission or remuneration/reward paid to a resident in connection with:
- Soliciting or procuring insurance business;
- Continuance of insurance business;
- Renewal of an insurance policy;
- Revival of an insurance policy.
Thus, commission paid to an insurance agent for procuring or continuing insurance business is covered.
Rate of TDS:
For a resident payee, insurance commission is subject to TDS at 2%.
Time of deduction:
The deduction of tax on the insurance commission shall be earlier of the following:
- The credit of commission to the account of the payee (receiver), or
- The actual payment is in cash or cheque or in kind.
Threshold limit:
TDS is required only where the amount of insurance commission credited or paid, or the aggregate during the tax year, exceeds ₹20,000.
There are 2 instances when TDS is not deductible:
- Commission paid does not exceed ₹20,000
- Self-declaration under Form 121 (Earlier 15G / 15H)
2. Commission on the sale of lottery tickets (Section 393(3), Table Sl. No. 4):
This section is mainly applicable to those persons who are either Distributors, Purchasers, or Sellers receiving income in the form of Commission, Remuneration, or prize on the sale of lottery tickets are liable to pay taxes. The person who is paying such income to above mentioned persons is liable to deduct taxes.
Rate of TDS:
The deductor is liable to deduct TDS at the rate of 2%.
Time of deduction of tax:
TDS should be deducted earlier for the following:
- At the time of credit of such income to the account of the receiver.
- At the time of payment in Cash / Cheque / ECS or any other mode.
Threshold limit:
TDS is applicable where the aggregate amount credited or paid during the tax year exceeds ₹20,000.
GST and TDS
- Where GST is separately indicated in the invoice and the conditions for exclusion of GST from the TDS base are satisfied, TDS is generally computed on the amount excluding the GST component.
3. Commission or brokerage – Other than Insurance (Section 393(1), Table Sl. No. 1(ii)):
Meaning of “Commission or brokerage”
Commission or brokerage generally covers payments received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered in connection with:
- Buying or selling of goods;
- Buying or selling of assets;
- Transactions relating to valuable articles or things;
- Other agency/brokerage arrangements covered by the provision.
Rate of TDS:
The deductor is liable to deduct TDS at the rate of 2%.
Time of deduction:
TDS shall be deducted at the time of:
- Crediting the sum to the payee’s account either in cash or
- By issue of cheque, draft, or by any other mode, whichever is earlier.
Threshold limit:
No TDS is required if the aggregate commission/brokerage during the tax year does not exceed ₹20,000.