Section 194H TDS on Commission: Reporting in Your ITR and Avoiding Scrutiny Notices

Section 194H of the Income Tax Act pertains to the deduction of Tax Deducted at Source (TDS) on commission or brokerage payments made to individuals or entities. It applies when any person (payer) makes a payment to a resident (payee) in the form of a commission or brokerage. This section ensures that tax is collected at the source of income earned through commission, reducing the chances of tax evasion and ensuring that the government receives the necessary revenue upfront. If you're a business owner or an individual who earns commission income, it’s crucial to understand how TDS under Section 194H works and how to correctly report it while filing your Income Tax Return (ITR). Let us explore what Section 194H is, how to report the TDS deducted, common mistakes to avoid, and how to respond to a scrutiny notice.

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Table of Contents:

• What is Section 194H?

• How to Report Section 194H TDS in Your ITR

• Common Mistakes to Avoid in Reporting Commission Income

• How to Respond to a Section 194H Scrutiny Notice

• How TaxBuddy Helps Simplify TDS Reporting

• Conclusion

• FAQs

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What is Section 194H?

Section 194H deals with the TDS that must be deducted on commission or brokerage income. According to this section, if a person (the payer) pays a commission or brokerage to another individual or entity (the payee), the payer is required to deduct TDS at the prescribed rate and remit it to the government. This deduction applies to payments made by businesses to agents, retailers, or distributors in exchange for the sale of goods or services.

• Threshold Limit: The threshold for Section 194H is ₹15,000 in a financial year. If the commission or brokerage income exceeds this amount in a financial year, the payer must deduct TDS.
  

• TDS Rate: The TDS rate under Section 194H is typically 5% if the recipient has provided their PAN. If the payee does not furnish a PAN, the TDS rate increases to 20%.

This section aims to ensure that income from commission is properly taxed and prevents the possibility of such income going unreported. The tax is deducted at the source, making it easier for the government to collect taxes.

How to Report Section 194H TDS in Your ITR

When it comes to filing your Income Tax Return (ITR), it’s crucial to accurately report any commission income received and the TDS deducted under Section 194H. Here’s how you can report Section 194H TDS in your ITR:

• Gather TDS Certificates: The first step in reporting TDS is to collect the TDS certificate (Form 16A) from the payer. This certificate will detail the amount of commission you received, the TDS deducted, and the amount remitted to the government.
  

• Include Income in the Correct Section: Commission income should be reported under “Income from Business or Profession” or “Income from Other Sources,” depending on how the income is earned. Ensure that you report the exact commission amount as shown in the TDS certificate.
  

• Claim Credit for TDS: On the ITR form, there is a section to claim credit for TDS deducted. You will need to enter the amount of TDS deducted under Section 194H, as mentioned on the TDS certificate, in the corresponding section of the ITR form.
  

• Ensure Accurate Reporting: Make sure that all details on your TDS certificate are correctly entered in the ITR form. Cross-check the amount of commission, TDS deducted, and the PAN of both the payer and the payee.

By accurately reporting the commission income and TDS in your ITR, you will ensure that you receive credit for the taxes already paid on your behalf, thus avoiding any additional tax liabilities.

Common Mistakes to Avoid in Reporting Commission Income

When filing your ITR and reporting commission income, there are several common mistakes that taxpayers often make. These mistakes can lead to delays, penalties, or even scrutiny from the tax authorities. Here are a few key mistakes to avoid:

• Failure to Report Entire Commission Income: Sometimes taxpayers fail to report the full amount of commission or brokerage they receive. It is essential to report the entire amount, even if some portion is subject to TDS, to ensure that you comply with tax laws.
  

• Incorrect TDS Amount Reporting: Ensure that the TDS amount deducted is accurately reported in your ITR. Discrepancies between the amount mentioned in the TDS certificate and the amount entered in your ITR can lead to tax audits or notices.
  

• Not Reporting Commission in the Correct Head: Commission income should be reported under the correct section, either as business income or other sources. Misreporting the income under the wrong section can lead to confusion and incorrect tax calculations.
  

• Not Including TDS Certificates: If you have received a TDS certificate (Form 16A), make sure it is included as part of your documentation when filing your ITR. Failing to submit the certificate can result in your TDS credit not being recognized.
  

• Missed TDS Deductions for Non-PAN Payees: If the payer fails to deduct TDS because the payee (you) has not provided a PAN, the TDS will be deducted at a higher rate. In such cases, ensure that you adjust your return accordingly and report the higher TDS rate to avoid discrepancies.

By avoiding these common mistakes, you can ensure that your ITR filing is accurate and minimize the risk of penalties or scrutiny.

How to Respond to a Section 194H Scrutiny Notice

If the Income Tax Department issues a scrutiny notice regarding your commission income or TDS reporting under Section 194H, it’s important to respond promptly and accurately. Here’s how to handle it:

• Understand the Notice: Scrutiny notices usually arise due to discrepancies in reported income or TDS. Carefully review the notice to understand the issue raised. It may ask for clarification on the TDS deductions, the commission income, or the mismatch between the TDS certificate and the reported income.
  

• Prepare Documentation: Gather all relevant documents, including TDS certificates, bank statements, contracts, and any correspondence with the payer. These documents will support your claim that the TDS was deducted correctly.
  

• Rectify Errors: If there are any errors in your ITR, such as incorrect TDS reporting or omitted income, file a revised return with the correct details. Make sure the revised return reflects all necessary changes.
  

• Respond to the Tax Authorities: Once you have all the documents and corrections in place, respond to the scrutiny notice within the given time frame. Be honest and provide all necessary documentation to avoid penalties.
  

• Seek Professional Help: If you're unsure about how to handle a scrutiny notice, consider seeking help from a tax professional. They can guide you through the process, ensure that your response is compliant, and help resolve the issue efficiently.

Responding correctly to a scrutiny notice can help resolve issues swiftly and avoid penalties.

How TaxBuddy Helps Simplify TDS Reporting

TaxBuddy simplifies the process of reporting TDS under Section 194H by providing an easy-to-use platform for taxpayers. Here’s how TaxBuddy can assist:

• Automated TDS Calculations: TaxBuddy automatically calculates the correct TDS deductions based on the commission income you report, ensuring accuracy and reducing the risk of errors.
  

• Guided Filing Process: With step-by-step guidance, TaxBuddy walks you through the process of entering your commission income and reporting TDS. This ensures that you don’t miss any critical details.
  

• Error-Free Filing: TaxBuddy’s platform checks for common mistakes, such as incorrect TDS amounts or misreported income, before submission, ensuring that your return is free from errors.
  

• TDS Credit Matching: TaxBuddy ensures that the TDS deductions reported in your ITR match the TDS certificates provided by the payer, making it easier to claim the correct TDS credit.
  

• Expert Assistance: If needed, TaxBuddy offers expert assistance to guide you through more complex scenarios, such as non-PAN payees or mismatches in TDS reporting.

By using TaxBuddy, you can streamline the process of reporting Section 194H TDS, ensuring compliance and minimizing the risk of penalties.

Conclusion

Section 194H of the Income Tax Act plays a critical role in ensuring that commission income is taxed properly. By understanding how TDS is deducted on commission and reporting it accurately in your ITR, you can ensure that your tax filings are in compliance with the law and avoid penalties. Common mistakes, such as failing to report the full commission income or mismatching TDS amounts, can lead to complications in your return. Responding promptly and correctly to any scrutiny notices is equally important. Platforms like TaxBuddy simplify the TDS reporting process by offering tools to ensure accuracy and provide expert assistance when needed. For anyone looking for assistance in filing their taxes, I highly recommend you download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQs

Q1: Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?

TaxBuddy offers both self-filing and expert-assisted plans, giving taxpayers the flexibility to choose the option that best suits their needs. Self-filing is ideal for individuals who are comfortable with the tax filing process and want to handle it independently. TaxBuddy’s platform provides easy-to-use tools and resources for this. On the other hand, for those who prefer professional assistance or have complex tax situations, the expert-assisted plan ensures that a qualified tax professional will guide them through the filing process, ensuring accuracy and compliance with the latest regulations.

Q2: Which is the best site to file ITR?

The best site for filing ITR depends on individual preferences and requirements. The official Income Tax Department portal allows you to file your taxes directly, but it may lack the user-friendly interface and guidance provided by other platforms. TaxBuddy is an excellent alternative, offering a highly intuitive platform for both self-filing and expert-assisted filing. It simplifies the filing process, provides step-by-step instructions, and ensures accuracy in tax submissions, making it an ideal choice for taxpayers looking for convenience and reliability.

Q3: Where to file an income tax return?

You can file your ITR through the official Income Tax Department portal atincometax.gov.in. Alternatively, for a more streamlined experience, you can use platforms like TaxBuddy, which simplify the filing process with easy-to-follow steps and the option of expert assistance. TaxBuddy’s platform is designed to help you navigate through the complexities of tax filing, ensuring that all necessary information is submitted correctly and on time.

Q4: Can I file my ITR after the deadline without penalties?

No, filing your ITR after the deadline will incur penalties. If you miss the original deadline, you can still file a belated return by December 31, 2025, for FY 2024-25 (Assessment Year 2025-26). However, late filings attract penalties and interest charges. The penalty for late filing can go up to ₹5,000, and interest will be charged on any unpaid taxes under sections 234A, 234B, and 234C of the Income Tax Act. To avoid these additional charges, it is advisable to file your return on time.

Q5: What happens if I fail to file ITR within the extended deadline?

If you fail to file your ITR within the extended deadline of September 15, 2025, you can still file a belated return until December 31, 2025. However, this will attract penalties and interest on any unpaid taxes. Filing after the deadline can also delay the processing of your refund, as belated returns are processed after timely returns. It is crucial to file within the extended deadline to avoid these consequences.

Q6: How do I check the status of my income tax refund?

You can easily track the status of your income tax refund on the official Income Tax Department’s e-filing portal. To do this, you need to log in using your PAN and the relevant assessment year details. If you have filed through TaxBuddy, you can also track your refund status directly through the platform, which provides timely updates and notifications on the progress of your filing and refund.

Q7: Does TaxBuddy assist with TDS credit verification?

Yes, TaxBuddy assists in verifying your TDS (Tax Deducted at Source) credits. Ensuring that your TDS credits are correctly reflected in your tax return is crucial for accurate filing and avoiding any discrepancies that could delay your refund. TaxBuddy helps ensure that the TDS amounts shown in your Form 26AS are matched with the details provided in your ITR, reducing the chances of mismatches or delays in refund processing.

Q8: How long does it take for TaxBuddy to process an ITR filing?

TaxBuddy processes returns quickly, with simple returns typically being completed within a few hours. For more complex returns that require expert assistance, the processing time may take longer, depending on the complexity of the tax situation. The platform ensures accuracy and compliance with all tax laws, and you will receive timely updates throughout the process. TaxBuddy aims to minimize delays and help you file your return promptly.

Q9: What if I file ITR after the extended deadline?

If you file your ITR after the extended deadline of September 15, 2025, you can still file a belated return, but it will come with penalties and interest. The belated return can be filed by December 31, 2025, for FY 2024-25 (Assessment Year 2025-26). However, keep in mind that filing late may result in delays in processing your refund, and penalties will apply, increasing your overall tax liability.

Q10: Are there penalties for errors in my ITR filing?

Yes, errors in your ITR filing can lead to penalties, interest on unpaid taxes, and delays in refund processing. Common mistakes include incorrect income reporting, missing deductions, or failing to report all TDS credits. These errors can trigger scrutiny from the tax authorities and result in penalties or requests for revised returns. To avoid these issues, it is important to ensure the accuracy of your tax return. Using a platform like TaxBuddy, which provides error-checking tools and expert assistance, can help minimize such mistakes.

Q11: Can I make corrections in my ITR after filing?

Yes, you can make corrections to your ITR by filing a revised return. This can be done if you discover any errors or omissions in your original return. The revised return must be filed before the end of the assessment year. It’s essential to correct any mistakes promptly to avoid penalties or delays in processing your refund. TaxBuddy allows you to file a revised return with ease, ensuring that your tax filing is accurate and compliant.

Q12: Does TaxBuddy support all tax regimes for ITR filing?

Yes, TaxBuddy supports both the old and new tax regimes for ITR filing. The platform helps you evaluate which tax regime (old or new) offers the best benefits based on your income, deductions, and exemptions. Whether you are eligible for deductions under the old tax regime or prefer the simplicity of the new tax regime, TaxBuddy guides you through the process and ensures that you choose the most beneficial option for your tax filing.