Understanding Sections 194I and 194H of the Income Tax Act

The Income Tax Act of India is divided into several sections that describe the responsibilities and duties related to taxes for both people and businesses. Of these, Sections 194I and 194H are crucial in terms of the TDS (tax at source) deduction on particular payments. We'll go into great detail in this blog post to provide you a thorough knowledge of these sections' provisions, rates, and effects.

Section 194I: TDS on Rent

1. Synopsis: TDS must be deducted from rent payments under Section 194I. Payments for the use of land, buildings, machinery, plants, equipment, furnishings, and fittings are all included in the broad definition of rent.
2. Relevance:
   • Relevant to individuals, businesses, associations of persons (AOPs), bodies of individuals (BOIs), Hindu Undivided Families (HUFs), and firms.
   • Rent deductions for TDS are not required for individuals or HUFs that are not subject to a tax audit under Section 44AB.
   • TDS is only necessary if the annual rent is more than ₹2,40,000.
3. Rates for TDS:
   • 2% of the rent amount paid for the use of the equipment, plant, or machinery.
   • 10% of the rent for the usage of the building, land, furnishings, or fittings.
4. Deduction Time: TDS must be withheld at the moment rent is credited to the payee's account or, if that happens sooner, at the time of payment.
5. TDS Deposit:
   • The government must receive the TDS deducted by the next month's seventh.
   • To report the TDS deductions, quarterly TDS returns (Form 26Q) must be submitted.
6. Repercussions for Non-Compliance:
   • Section 40(a)(ia) of the Income Tax Act provides that non-deduction or late deduction of TDS may result in the disallowance of the rent charge.
   • In addition, late or nonpayment of TDS may result in interest and penalties.
7. Illustrations:
   • A company's annual rent would be ₹6,00,000 if it were to pay ₹50,000 a month for office space. Ten percent tax (TDS) must be subtracted, totaling ₹60,000 annually.
   • The annual price for machinery rent of ₹3,60,000 includes ₹7,200 for TDS at 2%. The monthly cost is ₹30,000.

Section 194H: TDS on Commission or Brokerage

1. Overview: TDS deduction on commission or brokerage fees is covered by Section 194H.
2. Relevance:
   • Applicable to anyone paying a commission or brokerage, including people, HUFs, businesses, and other entities.
   • Individuals and HUFs are excluded from tax audits under Section 44AB.
   • If the commission or brokerage payment is more than ₹15,000 per year, TDS is due.
3. Brokerage or commission definition:

   Comprises payments made for services performed during the purchase or sale of products, transactions involving any kind of asset, priceless item, or thing, and serving as an agent for another individual.

4. Rate of TDS: 5% of the commission or brokerage amount.
5. Deduction Time: TDS must be withheld at the time of payment, whichever comes first, or when the commission or brokerage amount is credited to the payee's account.
6. TDS Deposit:
   • The government must receive the TDS deducted by the next month's seventh.
   • To report the TDS deductions, quarterly TDS returns (Form 26Q) must be submitted.
7. Repercussions for Non-Compliance:
   • According to Section 40(a)(ia) of the Income Tax Act, commission or brokerage expenses may not be allowed if TDS is not deducted or is not deducted until beyond the deadline.
   • If TDS is not paid on time or is paid after interest, there may be penalties and interest.
8. Illustrations:
   • A business pays a commission of ₹20,000 for services provided. TDS has to be subtracted at 5%, or ₹1,000.
   • TDS at 5% (₹1,250) must be subtracted by the payer from each transaction in which a person receives brokerage of ₹25,000.

Key Differences Between Section 194I and Section 194H:

• Subject Matter:
  • Section 194I: Rent payments.
  • Section 194H: Commission or brokerage payments.
• Rates for TDS:
  • Section 194I: 10% for land, building, furnishings, or fittings; 2% for machinery, plant, or equipment.
  • Section 194H: 5% for brokerage or commission.
• Threshold Limits:
  • Section 194I: TDS is applicable if the rent is more than ₹2,40,000 per year.
  • Section 194H: TDS is applicable if a brokerage or commission exceeds ₹15,000 per year.
• Deduction Standards:
  • Section 194I: TDS is withheld at the moment rent is paid or credited, whichever comes first.
  • Section 194H: Tax withholding is withheld at the time of credit, commission payment, or brokerage, whichever occurs first.

It is imperative that individuals and corporations comprehend these portions in order to guarantee adherence to tax regulations and prevent penalties. Taxpayers can assist in the proper operation of the tax system and manage their tax responsibilities by abiding by the provisions of Sections 194I and 194H.

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