Can I get a refund on TDS deducted under 194H?
- Asharam Swain
- Apr 30
- 8 min read
TDS under Section 194H of the Income Tax Act is applicable to commission or brokerage payments made to individuals or entities. For freelancers who earn commission-based income, understanding the nuances of Section 194H is crucial for accurate tax planning and compliance. This section mandates that tax is deducted at the source on commission payments above a certain threshold. It is especially relevant for freelancers who often engage in commission-based work or receive brokerage fees.
Table of Contents
Can I Get a Refund on TDS Deducted Under Section 194H?
Yes, you can claim a refund on TDS deducted under Section 194H if the amount deducted exceeds your actual tax liability. Refunds are possible in cases of excess or erroneous TDS deductions. To claim the refund, you need to file your Income Tax Return (ITR) and report the TDS details accurately.
Overview of TDS under Section 194H for FY 2024-25 and FY 2025-26
Section 194H of the Income Tax Act governs the deduction of Tax Deducted at Source (TDS) on commission or brokerage payments made to individuals or entities. It applies to commission payments, often made to agents, brokers, and intermediaries who facilitate transactions on behalf of businesses or individuals. This section ensures that taxes are deducted at the source itself, ensuring compliance with the tax authorities and preventing tax evasion. As per recent updates, the provisions under Section 194H have been revised to make compliance more taxpayer-friendly.
TDS Rate: The TDS rate under Section 194H has been reduced from 5% to 2% effective from October 1, 2024
From October 1, 2024, the TDS rate on commission and brokerage payments has been reduced to 2% from the previous rate of 5%. This reduction in the rate aims to reduce the tax burden on businesses and commission agents while simplifying the overall tax deduction process. The lower TDS rate makes it easier for businesses to comply with tax regulations, and for commission recipients to receive a higher proportion of their income without waiting for an excess tax deduction that needs to be refunded later.
Threshold Limit: The threshold for TDS deduction has been increased from Rs. 15,000 to Rs. 20,000 from FY 2025-26
Starting from FY 2025-26, the threshold for TDS deduction under Section 194H has been increased to ₹20,000 from the earlier limit of ₹15,000. This change will reduce the number of small commission payments that are subject to TDS, providing relief to businesses and individuals with lower commission earnings. This update will streamline the tax compliance process for smaller transactions and ensure that only larger payments are impacted by TDS deductions.
Who Deducts TDS?
TDS under Section 194H is deducted by the payer of the commission or brokerage. The payer refers to the entity or individual who is making the commission payment to the recipient. However, certain exceptions apply:
Individuals and Hindu Undivided Families (HUFs) are generally exempt from deducting TDS under Section 194H, unless they are engaged in a business or profession where the total sales, turnover, or gross receipts exceed ₹1 crore in the previous financial year.
Other businesses and entities involved in paying commission are required to deduct TDS at the applicable rate.
When Can a Refund of TDS Deducted Under Section 194H Be Claimed?
A refund of TDS deducted under Section 194H can be claimed under the following circumstances:
Excess Deduction: If TDS is deducted in excess of what is owed based on the actual commission income, the excess amount can be refunded.
Erroneous Deduction: If TDS is mistakenly deducted when the commission amount does not exceed the prescribed threshold for TDS, a refund can be requested.
Income Below Taxable Limit: If the total taxable income is below the taxable limit, or if there are exemptions or deductions available to reduce the tax liability, the excess TDS will be refunded after filing the income tax return.
How to Claim Refund of TDS Deducted Under Section 194H
Step 1: File your Income Tax Return (ITR) for the relevant assessment year (e.g., AY 2025-26 for FY 2024-25).
Step 2: Report the TDS details accurately using Form 26AS or the TRACES statement provided by the Income Tax Department.
Step 3: If the total tax liability is less than the TDS deducted, the excess TDS will be refunded after the Income Tax Department reviews the ITR.
Step 4: The refund will be credited directly to the bank account linked with your PAN after the refund process is completed.
Important Considerations and Updates for FY 2024-25 & FY 2025-26
Section 206AB Removal: From April 1, 2025, businesses will no longer need to check whether the deductee has filed income tax returns before deducting TDS. This simplifies the TDS deduction process and removes the compliance burden of verifying ITR filings for every deductee.
Increased Threshold: The increase in the threshold for TDS deduction from ₹15,000 to ₹20,000 in FY 2025-26 reduces the number of small commission payments that will attract TDS. This will reduce the administrative load for businesses and individuals who were previously affected by TDS on smaller amounts.
Lower TDS Rate: With the reduced TDS rate of 2%, fewer individuals and businesses will face situations where they have overpaid TDS. This update streamlines the process, making it less likely that taxpayers will need to claim refunds due to excessive deductions.
Specific Queries Related to Bank Account Opening Forms and TDS Refunds
Bank Account Details and TDS Refunds: The TDS refund is directly credited to the bank account linked with the taxpayer's PAN. It is important to ensure that the bank account details are correctly entered in the Income Tax Department's records to avoid delays in processing the refund.
Impact of Bank Account Details: Incorrect or unlinked bank account details can lead to a delay in the refund process, or in some cases, the refund may be rejected. It is vital to double-check the bank account details and ensure they are up to date in the government’s records.
TDS Refund and Bank Account Opening: When opening a new bank account, make sure to provide correct PAN and KYC details to facilitate the smooth processing of TDS refunds. The linked bank account is where the TDS refund will be credited.
Conclusion
Understanding the TDS provisions under Section 194H is vital for both commission recipients and those making commission payments. The recent updates in TDS rates, threshold limits, and the removal of Section 206AB have made it easier for individuals and businesses to comply with tax regulations. Ensuring that TDS is deducted accurately and refunds are claimed correctly will help avoid unnecessary tax burdens and ensure smooth operations in commission-based transactions. With the streamlined process for claiming TDS refunds and reduced TDS rates, it is now more efficient than ever for taxpayers to manage their tax compliance effectively.
Frequently Asked Questions (FAQs)
1. What is the TDS rate under Section 194H for FY 2024-25 and FY 2025-26?
For the financial years 2024-25 and 2025-26, the TDS rate under Section 194H on commission or brokerage income has been revised to 2%, effective from October 1, 2024. This reduction from the previous rate of 5% aims to ease the tax burden on individuals and entities involved in commission-based work. The TDS rate applies to commission payments exceeding ₹15,000 for individuals/HUFs and ₹20,000 for others in a financial year.
2. How can I check if excess TDS was deducted?
To verify if excess TDS has been deducted, you should compare the TDS amount shown in your Form 26AS with the actual commission paid to you. If the TDS amount appears to be higher than expected, you can cross-check the rate applied (which should be 2% on the base commission). Additionally, reviewing your TDS certificates (Form 16A) from the payer will help ensure that the correct TDS amount was deducted. If discrepancies arise, you can request the payer to rectify the error.
3. Can I claim a refund of TDS deducted on commission even if I have not filed my ITR?
Yes, you can claim a refund of TDS deducted on commission income even if you have not filed your Income Tax Return (ITR). However, it is recommended to file your ITR for the relevant assessment year to process the refund claim. Filing an ITR ensures that the TDS credit is accounted for and reflects correctly in your tax calculations, allowing for a refund if applicable.
4. What documents do I need to claim a TDS refund?
To claim a TDS refund, the following documents are generally required:
Form 16A: TDS certificate issued by the payer.
Form 26AS: Tax credit statement, which shows the TDS amount deducted and remitted.
Bank account details: For the refund to be credited.
Proof of income: This could include details of commission income, bank statements, or any other documentation supporting your earnings.
5. Is there a deadline for filing the ITR to claim a TDS refund?
Yes, there is a deadline for filing your ITR to claim a TDS refund. For the assessment year 2024-25, the last date for filing the return is July 31, 2025, for most individuals. Filing the ITR before the due date ensures that the TDS refund is processed in a timely manner. If you miss the deadline, you may be able to file a belated return within the extended time frame, but it may result in delays or penalties.
6. Can I claim a refund if no commission was received but TDS was still deducted?
Yes, if TDS was deducted on commission that was not actually received, you can still claim a refund. You would need to provide proof that no commission was paid and submit a claim for a refund of the excess TDS deducted. The refund will be processed based on the TDS credit available in Form 26AS.
7. Will the refund be credited to my bank account?
Yes, once the TDS refund is processed and approved, it will be credited to the bank account provided in your ITR form. Make sure the account details you submit are accurate and updated to avoid delays in receiving the refund.
8. Can I claim a refund for TDS deducted under 194H for previous years?
Yes, you can claim a refund for TDS deducted under Section 194H for previous years, but only if the TDS is reflected in your Form 26AS. To claim the refund, you must file a belated return for the year in which the TDS was deducted. However, there is a time limit for filing belated returns, which is generally one year from the end of the relevant assessment year.
9. How long does it take to receive a TDS refund?
The time it takes to receive a TDS refund typically ranges from 2 to 6 months, depending on the processing speed of the Income Tax Department. This can vary based on factors such as the accuracy of the information provided in your ITR, the refund volume during the tax season, and any additional scrutiny or verification required for your case.
10. What happens if the bank details provided for the refund are incorrect?
If the bank details provided for the TDS refund are incorrect, the refund will not be processed. In such cases, you may need to update your bank details with the Income Tax Department by filing a correction request. To avoid issues, always ensure that the bank account details entered in your ITR form are accurate and match the details linked with your PAN.
11. Do I need to file a separate refund application for TDS under Section 194H?
No, you do not need to file a separate refund application for TDS under Section 194H. The refund process is automatically triggered when you file your Income Tax Return (ITR). The refund will be processed based on the TDS details reflected in Form 26AS and Form 16A.
12. Is it possible to claim a refund for TDS deducted on commission under the new tax regime?
Yes, you can claim a refund for TDS deducted on commission under the new tax regime, provided that you have filed your Income Tax Return (ITR) and the TDS deducted is reflected in Form 26AS. The new tax regime does not affect the refund process for TDS deducted; it only impacts the calculation of tax based on the tax slab chosen.
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