Is GST applicable on commission under 194H?
- Asharam Swain
- Apr 30
- 7 min read
GST applies to commission income under Section 194H of the Income Tax Act, treating it as a supply of service. Commission payments are subject to an 18% GST rate, which is calculated separately from the base commission for TDS purposes. TDS under Section 194H is deducted only on the commission amount, excluding GST, making it important for businesses and individuals in commission-based industries to understand how these provisions interact for accurate tax compliance.
Table of Contents
Is GST Applicable on Commission under Section 194H?
Yes, GST is applicable on commission income, including payments subject to TDS under Section 194H of the Income Tax Act. The commission is treated as a supply of service under GST law, and an 18% GST is charged on the commission amount. This applies to both agents and brokers involved in facilitating transactions. However, it's important to note that GST is calculated separately and is not included in the base commission for TDS deduction.
Overview of Section 194H and Commission Income
Section 194H of the Income Tax Act, 1961 mandates the deduction of Tax Deducted at Source (TDS) on commission or brokerage income. This provision applies to individuals, Hindu Undivided Families (HUFs), or other entities receiving commission payments in exchange for services rendered, typically in the context of brokers, agents, or intermediaries facilitating transactions.
Threshold for TDS Deduction: TDS under Section 194H is applicable when the total commission paid exceeds ₹15,000 in a financial year for individuals/HUFs, and ₹20,000 for other entities. This threshold ensures that smaller commission payments are not subjected to TDS, while larger payments are.
TDS Rate: The TDS rate for commission or brokerage income has been revised to 2% from the previous rate of 5%, effective from October 1, 2024. This reduction aims to simplify tax compliance and reduce the financial burden on businesses and agents.
Taxable under Section 28: Commission income is taxable under the head "Profits and Gains of Business or Profession" as per Section 28 of the Income Tax Act, meaning it is subject to regular income tax computation based on the taxpayer's total income.
Applicability of GST on Commission
Goods and Services Tax (GST) is charged on commission income as it is treated as a supply of service under GST law. The GST rate for commission income is 18%, making it a significant consideration for businesses and individuals engaged in commission-based activities.
GST Calculation: GST is levied on the commission amount, which is considered a separate charge from the base commission. It is important to note that GST applies to the full commission amount (the service component), not including any TDS deductions. This means that GST is calculated after TDS has been deducted from the base commission, which ensures accurate tax calculations.
Separate from TDS: GST is a distinct tax from TDS. While the GST is payable on the total commission amount, the TDS is only deducted on the base commission before applying GST. Therefore, businesses must ensure that they are deducting TDS correctly from the commission and calculating GST separately.
Interaction Between GST and TDS under Section 194H
The interaction between GST and TDS provisions under Section 194H is an important aspect for tax compliance. Key points to note include:
TDS on Base Commission Only: The TDS under Section 194H is calculated only on the base commission amount. The GST component is excluded from the TDS calculation, ensuring that tax deductions are made solely on the commission paid for services rendered.
Order of Tax Application: The payer is responsible for deducting TDS from the commission before applying the GST. This means the payer must first calculate the commission on which TDS will be deducted and ensure GST is applied on the total commission amount (commission + GST). This separation is vital for accurate tax calculations and compliance.
GST Payment Responsibility: The agent or broker is responsible for collecting and paying the GST to the government on the commission earned. This is separate from the TDS obligations, where the payer (usually the business or principal) is responsible for the deduction and remittance of TDS.
Specific Points Related to Bank Account Opening Forms and Commission
When commission income is involved, especially for agents or brokers, specific details need to be accurately reported in forms related to bank account openings and other compliance documentation:
Reporting Commission Income: Commission income should be disclosed in the bank account opening forms, along with any TDS deductions made under Section 194H. This ensures that both the commission received and the tax deducted at source are properly reported for financial transparency and compliance.
PAN and GST Registration: For TDS and GST compliance, PAN details must be provided, as the TDS is linked to the PAN of the recipient. Additionally, if the agent or broker is registered under GST, the relevant GST registration details must be included in the bank forms to ensure accurate reporting of GST on commission income.
Documentation and Record-Keeping: Accurate documentation and record-keeping are essential to ensure compliance with both TDS and GST regulations. Agents, brokers, and businesses must retain proper records of all commission payments, GST charges, and TDS deductions to avoid penalties and disallowances.
Summary for FY 2024-25 & FY 2025-26
Aspect | Details |
TDS Rate on Commission | 2% (reduced from 5% effective Oct 1, 2024) |
Threshold for TDS Deduction | ₹15,000 for individuals/HUFs; ₹20,000 for others |
GST Rate on Commission | 18% |
TDS Applicability on GST | No TDS on GST component, only on base commission |
Relevant Sections | Income Tax Act: Section 194H (TDS), Section 28 (Taxability); GST Law for service tax |
Compliance Forms | TDS return filing in Form 26Q; TDS certificate in Form 16A |
Conclusion
Understanding the interplay between GST and TDS on commission income under Section 194H is essential for ensuring proper tax compliance. While GST is applicable on the commission at a rate of 18%, TDS is only calculated on the base commission, excluding GST. Accurate record-keeping and diligent compliance with both TDS and GST requirements will help avoid penalties and ensure smooth operations for businesses and agents engaged in commission-based transactions.
Frequently Asked Question (FAQs)
1. Is GST applicable on commission income?
Yes, GST is applicable on commission income. Since commission is considered a supply of service under GST law, it is subject to an 18% GST rate. This is separate from TDS provisions under Section 194H.
2. What is the TDS rate on commission income under Section 194H?
The TDS rate on commission or brokerage income under Section 194H is 2%. This rate was revised from 5% to 2% effective from October 1, 2024, to simplify the process for taxpayers involved in commission-based transactions.
3. What is the threshold for TDS deduction under Section 194H?
TDS under Section 194H applies when the commission or brokerage income exceeds:
₹15,000 for individuals and Hindu Undivided Families (HUFs)
₹20,000 for others (including companies and partnerships)
If the commission exceeds these limits in a financial year, TDS must be deducted.
4. Does GST apply to all commission payments?
GST applies to all commission payments as a supply of service. The commission amount is subject to an 18% GST, irrespective of whether the commission is paid by an individual or an entity.
5. How does TDS interact with GST on commission income?
TDS under Section 194H is deductible only on the base commission amount, not on the GST portion. The payer should deduct TDS before applying GST. Therefore, GST is calculated separately, and TDS is applied on the commission portion alone.
6. How do I calculate TDS when GST is applicable?
To calculate TDS when GST is applicable, first, calculate the base commission amount (excluding GST). Deduct TDS on this base commission according to the applicable TDS rate (2% from October 1, 2024). After deducting TDS, GST at 18% is added to the commission amount.
7. Do I need to provide PAN and GST registration details when opening a bank account for commission income?
Yes, when opening a bank account that involves commission income, you may need to provide your PAN details for TDS compliance. Additionally, if you are registered under GST, you should also provide your GST registration details for correct GST reporting and compliance.
8. Can I claim GST input tax credit on commission income?
Yes, commission agents who are registered under GST can claim input tax credit (ITC) on the GST paid for business-related expenses. However, if the commission is part of an exempt supply or outside the scope of GST, ITC may not be available.
9. What happens if TDS is not deducted from commission payments?
Failure to deduct TDS from commission payments can lead to penalties and disallowance of expenses under Section 40(a)(ia) of the Income Tax Act. Additionally, the payer may face interest charges and possible legal consequences.
10. Do e-commerce operators need to comply with Section 194H for commission income?
No, e-commerce operators have separate provisions under Section 194O for TDS on payments made to e-commerce participants. Section 194O applies to transactions facilitated by e-commerce platforms and is distinct from Section 194H, which deals with commission paid in traditional brokerage scenarios.
11. Is TDS applicable on the GST component of commission income?
No, TDS is not applicable on the GST component of commission income. TDS is deducted only on the base commission amount and not on the GST that is separately calculated and paid to the government by the agent or broker.
12. What are the compliance forms required for TDS on commission income?
For TDS compliance on commission income, the following forms are required:
Form 26Q: For filing TDS returns
Form 16A: For issuing TDS certificates to the recipient of commission, showing the amount of TDS deducted and remitted.
These forms ensure that TDS is properly reported and the recipient can claim credit for the TDS deducted while filing their income tax return.
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