Handling Income Tax Notices Under Section 194H for Incorrect TDS on Commission Payments in Your ITR
- Bhavika Rajput
- Jun 2
- 8 min read
Income Tax notices under Section 194H can cause confusion, especially when incorrect TDS (Tax Deducted at Source) has been reported on commission payments. Section 194H of the Income Tax Act deals with the deduction of TDS on commission and brokerage payments made to residents. If you receive a notice regarding incorrect TDS on commission payments in your Income Tax Return (ITR), it's crucial to take immediate action to avoid penalties and ensure compliance with the tax regulations. Let us explore the reasons behind such notices, common errors, and the steps to handle and resolve the issue efficiently, ensuring your tax filings remain accurate.
Table of Contents
What is Section 194H?
Section 194H of the Income Tax Act mandates that any person paying commission or brokerage to a resident must deduct TDS, provided the payment exceeds a specified threshold. The section applies to commissions or brokerage paid by a business or professional to an individual, company, or other entities. The TDS rate was reduced from 5% to 2% effective from October 1, 2024, and the threshold limit has been increased from ₹15,000 to ₹20,000 from April 1, 2025. Additionally, if the recipient fails to provide their PAN (Permanent Account Number), the TDS is deducted at a higher rate of 20%. The purpose of Section 194H is to ensure tax compliance by deducting the tax at source, thereby preventing the non-payment of taxes on commission-based earnings.
Common Reasons for Income Tax Notices Under Section 194H
Income tax notices under Section 194H usually arise due to discrepancies in the TDS deductions or reporting. Here are some common reasons for such notices:
Non-Deduction or Short Deduction of TDSFailing to deduct the TDS at all or deducting it at a lower rate than prescribed can result in a notice. This typically occurs when businesses or professionals do not properly assess the commission payments for TDS requirements.
Non-Deposit or Delayed Deposit of TDSEven if TDS is deducted, it must be deposited with the government within the stipulated time frame. Failure to deposit the deducted TDS on time can lead to penalties and notices.
Mismatch in TDS ReportingThere might be discrepancies between the TDS amount reported in Form 26AS (the annual tax statement) and the amount claimed in the ITR. Such mismatches can prompt the tax authorities to send notices asking for clarification.
Incorrect Quoting of PANIf the PAN of the payee is incorrectly reported or missing, the TDS will be deducted at a higher rate (20%). This can lead to excess TDS being deducted, which needs to be rectified by filing a revised TDS return.
Incorrect Reporting of Commission PaymentsSometimes, commission payments are not reported correctly in the tax filings, leading to a mismatch between the actual TDS deduction and the amount shown in the returns.
Steps to Handle an Income Tax Notice for Incorrect TDS on Commission Payments
Here are the steps you should take to handle an income tax notice for incorrect TDS on commission payments:
Review the Notice Carefully
The first step is to thoroughly read the notice to understand the discrepancies identified by the Income Tax Department. The notice will typically mention the specific section under which the notice is issued and the nature of the issue, such as non-deduction or short deduction of TDS.
Reconcile Your Records
Compare your ITR details with Form 26AS and Form 16A (TDS certificates) to check for mismatches. Ensure that the TDS deducted and deposited matches the information in these forms. If there are discrepancies, identify the source of the error.
Correct the Error
If TDS was not deducted or was deducted incorrectly, take immediate
corrective action. This may involve filing a revised TDS return (Form 26Q) to reflect the correct details. If the issue is due to an incorrect PAN, update your PAN details with the deductor and request them to amend the TDS return.
Respond to the Notice
Once you have reviewed the details and made the necessary corrections, log in to the income tax e-filing portal, go to the 'e-Proceedings' section, and submit your response. Include supporting documents, such as TDS certificates, bank statements, and correspondence with the deductor, to substantiate your claims.
Pay Interest and Penalties (if applicable)
If there is a delay or shortfall in TDS deduction or deposit, calculate the applicable interest and penalties. Pay these amounts promptly to avoid further complications. Interest under Sections 234B and 234C may apply if the TDS is deducted late or insufficiently.
Seek Professional Help
If the issue is complex, or you are unsure about the correct process, consider consulting a tax expert or using platforms like TaxBuddy for guidance. They can assist you with the proper response, filing of revised returns, and any calculations related to penalties or interest.
Conclusion
Handling income tax notices under Section 194H requires timely action, accurate documentation, and a clear understanding of TDS compliance. By reviewing your records, filing revised returns, and submitting necessary corrections, you can ensure your tax filings are accurate and avoid penalties. Platforms like TaxBuddy simplify the process by offering expert guidance and automated compliance checks to help you manage your TDS obligations efficiently. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
1. What is the current TDS rate under Section 194H?
The TDS rate under Section 194H is 2% for commission or brokerage payments exceeding ₹20,000, effective from October 1, 2024. This rate applies to commission or brokerage payments made by a business or professional to residents. If the recipient does not provide their PAN, the TDS rate increases to 20%. Ensure that you are up-to-date with the latest regulations to avoid errors in your tax filings.
2. Who is liable to deduct TDS under Section 194H?
TDS under Section 194H must be deducted by any person (except for individuals or Hindu Undivided Families (HUFs) not subject to audit) who is making commission or brokerage payments to a resident. The TDS liability is applicable if the payment exceeds the prescribed threshold limit, which has been revised to ₹20,000 from April 1, 2025. This includes businesses and professionals who pay commission or brokerage to agents, distributors, or other payees for services rendered.
3. What happens if TDS is not deducted or deposited on time?
Failure to deduct or deposit TDS on time results in penalties and interest charges under sections 234B and 234C. The tax authorities may also issue an income tax notice requesting the deduction and deposit be corrected. If the TDS is not deducted, or there’s a shortfall in the deduction, you may be required to pay interest for the delay, which is calculated based on the shortfall amount. Additionally, the deductor may be penalized for non-compliance. The best practice is to ensure timely deductions and deposits to avoid these consequences.
4. How can I track my TDS deductions and avoid mismatches?
To avoid mismatches, regularly check Form 26AS, which provides a summary of the TDS deducted and deposited by the deductor. Cross-check the amounts in Form 26AS with your records to ensure they align. It’s also important to maintain accurate records of commission payments and TDS deductions. Tax management apps like TaxBuddy can help automate the tracking process by offering notifications and reminders for TDS compliance, ensuring that you don’t miss out on necessary updates or corrections.
5. Can I avoid TDS if my income is below the taxable limit?
Yes, if your income is below the taxable limit, you can avoid TDS by submitting Form 15G (for individuals below 60) or Form 15H (for senior citizens) to the deductor. These forms serve as a declaration that your income is below the taxable threshold, and as such, no TDS is required. Ensure that you meet the eligibility conditions for submitting these forms, as they help reduce unnecessary TDS deductions when your income doesn’t require tax payment.
6. How do I respond to a Section 194H notice for incorrect TDS?
To respond to a Section 194H notice, first, review the notice to understand the discrepancies it highlights. Next, reconcile your records by comparing the information in your ITR with Form 26AS and the TDS certificates (Form 16A). If there are discrepancies, file a revised TDS return (Form 26Q) or update your ITR with the correct TDS details. Submit your response through the income tax e-filing portal under the 'e-Proceedings' section, along with supporting documents like TDS certificates and bank statements. Timely and accurate responses can help resolve the issue without penalties.
7. How can I correct the TDS details in my ITR?
If the TDS details in your ITR are incorrect, you need to file a revised ITR with the correct information. If the error was made by the deductor, they must file a corrected TDS return (Form 26Q). The revised ITR should reflect the accurate TDS deductions as per Form 26AS or Form 16A. Additionally, ensure that the TDS amount is correctly matched with the corresponding commission payments. Correcting TDS errors will prevent discrepancies and help you avoid notices from the tax department.
8. Can TaxBuddy help in handling Section 194H notices?
Yes, TaxBuddy can assist in resolving Section 194H notices by offering expert guidance and helping you file the necessary corrections. With the platform's easy-to-use tools, TaxBuddy can help you track TDS deductions, file revised TDS returns, and submit responses to income tax notices efficiently. TaxBuddy ensures that all your TDS-related queries are addressed, making it easier for you to maintain compliance and avoid penalties.
9. What are the penalties for incorrect TDS reporting?
Penalties for incorrect TDS reporting can include interest under sections 234B and 234C, which are calculated based on the shortfall in TDS deducted or deposited. Additionally, penalties for non-compliance can range from ₹10,000 to ₹1,00,000, depending on the severity of the error. If the TDS deduction is significantly incorrect, the tax authorities may impose stricter penalties, including prosecution in extreme cases. It's crucial to correct any TDS errors to minimize these penalties and avoid further scrutiny.
10. How do I ensure compliance with Section 194H?
To ensure compliance with Section 194H, always deduct TDS on commission payments above the threshold limit and deposit the deducted tax on time. Regularly reconcile your records with Form 26AS to check for any discrepancies between the reported TDS and the deductions claimed in your ITR. Maintain accurate documentation of commission payments and ensure PAN details are correctly reported. Using tools like TaxBuddy can help automate the compliance process, ensuring timely deductions and correct reporting.
11. Is it possible to claim excess TDS as a refund?
Yes, if TDS has been deducted at a higher rate than necessary, you can claim the excess TDS as a refund when filing your ITR. The refund can be processed once the TDS discrepancy is corrected, and the tax department has validated the correct deduction amount. Ensure that you file a revised return to reflect the correct TDS details and claim the excess amount. This will prevent any delays or errors in processing your refund.
12. Can I file a revised TDS return?
Yes, if there is an error in the original TDS return, you can file a revised TDS return (Form 26Q). The revised return should include the correct TDS deductions, PAN details, and commission payment amounts. Ensure that the revised return is filed promptly to avoid penalties and interest. Filing a revised return ensures that your tax records are accurate, and any discrepancies are resolved before the tax authorities initiate further action.
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