Understanding the TDS provisions for brokerage commission

Posted In | Finance | Accounting Software | India Accounting Tax

The income tax department of India has implemented several provisions to collect tax at the source of income. One such provision is the Tax Deducted at Source (TDS) on brokerage commission. This article aims to provide a comprehensive understanding of the TDS provisions for the brokerage commission.

 

What is TDS on Brokerage Commission?

TDS on brokerage commission is the tax deducted at the source when a brokerage commission is paid to a broker. The person who pays the commission is responsible for deducting this tax and depositing it with the government.

 

When is TDS on Brokerage Commission Deducted?

TDS on brokerage commission is deducted at the time of credit of such commission to the account of the payee or at the time of payment, whichever is earlier. This means that whether the commission is paid in cash, cheque, draft, or any other mode, TDS should be deducted.

 

What is the Rate of TDS on Brokerage Commission?

The rate of TDS on brokerage commission is 5% if the payee is an Indian resident. However, if the payee is non-resident, the TDS rate is 20% (plus applicable surcharge and cess).

 

What is the Threshold Limit for TDS on Brokerage Commission?

The threshold limit for TDS on brokerage commission is Rs. 15,000. This means if the commission paid or credited during a financial year exceeds Rs. 15,000, TDS should be deducted. If the commission amount is less than this limit, then no TDS is required to be deducted.

 

How to Deposit TDS on Brokerage Commission?

The deductor, after deducting TDS on brokerage commission, is required to deposit it with the government by the 7th of the next month. The TDS can be deposited online through the income tax department's official website or at designated branches of banks empanelled with the income tax department.

 

What are the Consequences of Non-deduction or Late Deduction of TDS on Brokerage Commission?

If the TDS on brokerage commission is not deducted or deducted but not deposited with the government within the stipulated time, the deductor can face penalties. The penalty can be in the form of interest on the amount of TDS not deducted or deposited and can lead to disallowance of expenditure.

 

Understanding the TDS provisions for brokerage commission is crucial for both the payer and payee. It ensures compliance with the tax laws and helps avoid penalties. The deductor should ensure timely deduction and deposit of TDS, while the payee should ensure that the TDS deducted is reflecting in his Form 26AS.