Circular No. 619

What this is

Circular No. 619 was issued by the Central Board of Direct Taxes on 4 December 1991. Its subject is Section 194H l Commission, Brokerage, ETC 1 .

What it does

The Board's instruction on the new section 194H, inserted by the Finance (No. 2) Act, 1991, under which a person other than an individual or a Hindu undivided family who pays a resident commission, not being insurance commission under section 194D, or brokerage, on or after 1st October 1991, must deduct income-tax at 10 per cent at credit or payment, whichever is earlier, credit to a suspense or any other account counting as credit to the payee. Commission or brokerage takes in any payment received or receivable, directly or indirectly, by a person acting on another's behalf for services rendered that are not professional services, or for services in the course of buying or selling goods or in relation to a transaction in any asset, valuable article or thing. The tax is increased by surcharge of 12 per cent for a resident non-company payee and 15 per cent for a domestic company. Four cases are outside it: where the aggregate commission credited or paid, or likely to be, by a payer to a payee in the financial year does not exceed Rs. 2,500; where the payer is an individual or a Hindu undivided family; where the Central Government notifies persons or classes of persons in the Official Gazette; and where the payment is for professional services, meaning legal, medical, engineering, architectural, accountancy, technical consultancy or interior decoration, or a profession notified for section 44AA, of which only film artists and authorised representatives had then been notified. The Board also clarifies that where a consignee or agent keeps back his commission from the sale proceeds instead of remitting it, that is constructive payment, so the consignor or principal must deduct and deposit the tax on it.

Why it was issued

To instruct deductors on a newly enacted provision taking effect from 1st October 1991.

Who it reaches

• Companies, firms and other non-individual payers of commission and brokerage
• Consignment agents who retain commission from sale proceeds
• Brokers and commission agents receiving more than Rs. 2,500 a year from one payer
• Professionals whose fees fall outside the section

The provisions it speaks to

The instrument, as the Board published it

SECTION 194H l COMMISSION, BROKERAGE, ETC 1 .
1147. Instructions for deduction of tax at source from commission, brokerage, etc.
1. The Finance (No. 2) Act, 1991 has introduced a new section 194H, into the Income-tax Act, 1961, which provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of October, 1991, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.
2. For the purposes of this section, commission or brokerage includes any payment received or receivable, directly or indi­rectly, by a person acting on behalf of another person for serv­ices rendered (not being professional services) or for any serv­ices in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing.
3. It may also be stated that credit of any income to any account whether called "Suspense account" or by any other name shall be deemed to be credit of such income to the account of the payee and the provisions of section 194H shall apply accordingly.
4. The tax so deducted at the rate of ten per cent is required to be increased by surcharge at the rate of twelve per cent where the payee is a resident person (other than a company) and at the rate of fifteen per cent where the payee is a domestic company.
5. No deduction is, however, required to be made in the following cases :
(i) Where the aggregate amount of commission income credit­ed or paid or likely to be credited or paid by a payer to a payee during a financial year does not exceed two thousand five hundred rupees.
(ii) Where the payment is made by an individual or a Hindu undivided family.
(iii) In cases of such persons or class or classes of persons (whether payer or payee) as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them, and being satisfied that it would not be prejudicial to the interests of revenue, by Notification in the Official Gazette, specify, in this behalf.
(iv) Where payment of commission income is made for "profes­sional services". For this purpose, professional services mean services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profes­sion of accountancy to technical consultancy or interior decora­tion or such other profession as is notified by the Board for the purposes of section 44AA of the Income-tax Act. So far, only two professions, namely, of film artists and authorised representa­tives, have been notified.
6. A question may raise whether there would be deduction of tax at source under section 194H where commission or brokerage is retained by the consignee/agent and not remitted to the consign­or/principal while remitting the sale consideration. It may be clarified that since the retention of commission by the consign­ee/agent amounts to constructive payment of the same to him by the consignor/principal, deduction of tax at source is required to be made from the amount of commission. Therefore, the consign­or/principal will have to deposit the tax deductible on the amount of commission income to the credit of the Central Govern­ment, within the prescribed time, as explained in the succeeding paragraphs.
7. The responsibilities, obligations, etc., under the Income-tax Act of a person deducting income-tax at source are as follows :
(a) According to the provisions of section 200, any person deducting tax at source under section 194H shall pay, within the prescribed time (as laid down in rule 30 of the Income-tax Rules, 1962), the tax so deducted to the credit of the Central Govern­ment. In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of the deduction itself. In other cases, payment is normally to be made within one week from the last day of month in which the deduction is made. However, with the permission of the Assessing Officer, tax deducted at source can also be paid to the credit of the Central Government on quarterly basis. If a person fails to deduct tax at source, or, after deducting, fails to pay tax to the credit of the Cen­tral Government, he shall be liable to action under the provi­sions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at fif­teen per cent per annum on the amount of such tax from the date on which the tax was deductible to the date on which it is actu­ally paid. Further, section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay by way of penalty a sum equal to the amount of tax which he failed to deduct at source. In this regard, attention is also invited to the provisions of section 276B which lays down that if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine.
(b) According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, the amount deducted and certain other particulars. This certificate has to be furnished in Form No. 16A (copy enclosed) within the prescribed period of one month and fourteen days to the person to whose account credit is given or to whom payment is made or cheque is issued. The certificate can be issued on the tax deductor’s own stationery. If a person fails to furnish this certificate, he shall be liable to pay by way of penalty under section 272A, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for each day during which the failure continues.
(c) According to the provisions of section 203A, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax-deduction Account Number (TAN) in the various challans, TDS certificates, returns, etc. Detailed instructions in this regard are available in this Department’s Circular No. 497, dated 9-10-1987 for reference and guidance. If a person fails to comply with the provisions of section 203A, he shall be liable to pay by way of penalty under section 272BB, a sum up to Rs. 5,000.
These instructions are not exhaustive and are issued with a view to helping the persons responsible for making deduction of tax at source under section 194H. Where there is any doubt, a reference may be made to the relevant provisions of the Income-tax Act, 1961 and the Finance (No. 2) Act, 1991. In case any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached.
Circular : No. 619, dated 4-12-1991.
FORM NO. 16A
[See rule 31(1)(b)]
Certificate of deduction of tax at source under section 203 of the Income-tax Act, 1961
[For interest on securities, dividends, interest on time deposits referred to in clauses (vii) and (viia) of sub-section (3) of section 194A; insurance commission; payments in respect of depos­its under National Savings Scheme; payments on account of repur­chase of units by the Mutual Fund or Unit Trust of India; commis­sion, remuneration or prize on sale of lottery tickets; commis­sion or brokerage; income from units referred to in section 196B.]

Name and address of the

TDS circle

Name and address of the person

person deducting tax

where Annual

to whom payment made or in

.........................................................

Return under

whose account it is credited

section 206 is to

.........................................................

be delivered

.......................................................

.........................................................

...............................

.......................................................

.........................................................

...............................

.......................................................

.........................................................

...............................

.......................................................

.........................................................

...............................

.......................................................

TAX DEDUCTION A/C NO.

NATURE OF

PAN/GIR NO. OF THE PAYEE

OF THE DEDUCTOR

PAYMENT

PAN/GIR NO. OF THE

FOR THE PERIOD ....................

DEDUCTOR

19..... TO 19.....

DETAILS OF PAYMENT, TAX DEDUCTION AND DEPOSIT OF TAX INTO CENTRAL GOVERNMENT ACCOUNT

Date of

Amount

Amount of

Rate at

Date &

Name of

payment/

Paid/

income-tax

which

Challan No.

bank and

credit

credited

deducted

deducted

of deposit of

branch

(Rs.)

(Rs.)

tax into

where tax

Central

deposited

Government

Account

Certified that a sum of Rs. (in words) ...................... has been deducted at source and paid to the credit of the Central Government as per details given above.

.................................................................

Signature of person responsible for

deduction of tax

Place.................

Full Name............................................

Date..................

Designation.........................................

What to watch

• The constructive payment point is the trap: a principal who never remits the commission is still the person who must deduct and pay the tax.
• The Rs. 2,500 exemption is per payer and per payee for the financial year, and takes in amounts likely to be paid, not just those already paid.
• Insurance commission stays with section 194D, and professional services as defined are outside section 194H altogether.
• The rates, surcharge, threshold and the 15 per cent interest under section 201(1A) described are those of 1991 and have all changed since; section 194H itself was later omitted and re-enacted.

Where you meet it

In a section 201 proceeding against a principal who allowed an agent to retain commission without deduction, and in a survey of a company's commission ledgers for deduction defaults.

What it names

Forms it names. Form No. 16A

Rules it names. Rule 30, 31 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

On the same provision

• Notification No. 92 — Section 120 (1) and (2) of the Income-tax Act, 1961 - Income-tax authorities - Jurisdiction of – Amendment in Notificati 8 December 2009
• Notification No. 06 — A notification under section 44AA of the Income-tax Act, 1961 8 January 2004
• Notification No. 30 — In Schedule-I, to the said notification for serial numbers 67, 74, 207, 208, 209, 210 and 211, and the entries relating 4 February 2003
• Notification: 21 Date of Issue : 4/2/2002 — Amendment of the Income-tax Rules under section 44AA of the Income-tax Act, 1961 4 February 2002
• Notification No. 385E- — Profession of information technology notified under section 44AA 4 May 2001
• Circular No. 3 — 414. Filing of Audit Report under sections 44AD(6), 44AE(7) and 44AF(5) of the Income-tax Act, 1961, for the assessment 9 February 2001

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