Section 194H of Income Tax Act – TDS on Commission & Brokerage

Tax Deducted at Source (TDS) is one of the most important mechanisms under the Indian Income Tax Act to ensure smooth tax collection. Section 194H specifically deals with TDS on income earned through commission or brokerage . It ensures that taxes on such earnings are deducted at the source itself, reducing the chances of tax evasion and simplifying compliance for both deductors and recipients.

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TDS

What’s New (Rate & Threshold) – FY 2024–25 / FY 2025–26?

Section 194H covers TDS on commission or brokerage (other than insurance commission and some specific exceptions). As per the latest information available up to mid 2024, there is no change in the core rate or threshold between FY 2024–25 and FY 2025–26.

  • TDS rate under Section 194H continues at 5% for resident payees where PAN is correctly quoted.
  • Threshold limit continues at ₹15,000 per financial year per payee. If total commission or brokerage paid or credited to a person during the year does not exceed ₹15,000, TDS under 194H is generally not required.
  • If the payee does not furnish PAN, higher TDS may apply (usually 20%) under the general higher deduction rules.
  • For certain non-filers of income tax returns, higher TDS under Section 206AB can also apply on 194H payments, even though the basic statutory rate of 5% remains the same.

When updating your TDS working or writing guidance, it is always safest to cross-check the latest Finance Act / official TDS chart at the start of the year to confirm that the 5% rate and ₹15,000 threshold still apply for that specific FY.

What is Section 194H?

Section 194H mandates that any person (other than an individual or HUF not liable to tax audit) who pays commission or brokerage to a resident must  deduct TDS  at the applicable rate. This section helps streamline taxation on intermediary earnings, ensuring timely collection of tax revenue.

What is Commission and Brokerage?

For the purpose of Section 194H:

  • Commission includes any payment received or receivable for services rendered (other than professional services).
  • Brokerage includes any payment received for facilitating a transaction between two parties, such as selling goods, securing services, or dealing in securities.

Examples include:

  • Insurance commission paid to agents
  • Commission to brokers in real estate transactions
  • Referral commissions in banking or financial services

Who can deduct TDS under Section 194H?

TDS under Section 194H can be deducted by:

However, individuals and HUFs not covered under tax audit (Section 44AB) in the preceding year are not required to deduct TDS under this section.

TDS Rate on Commission and Brokerage

The rate of TDS on commission under Section 194H is:

  • 5% of the commission or brokerage amount.
  • If the payee does not provide PAN, TDS is deducted at 20% (higher rate under Section 206AA).

When is TDS Deducted under Section 194H?

TDS must be deducted at the time of credit of the commission/brokerage in the payee’s account or at the time of payment, whichever is earlier.

This ensures that TDS is not delayed until final settlement.

Provisions for Nil Tax or Lower TDS under Section 194H

A payee can apply for a Nil or Lower TDS deduction certificate under Section 197 by submitting Form 13 to the Assessing Officer. Once approved, the payer can deduct TDS at the lower/nil rate specified in the certificate.

Exemptions of TDS on Commission

TDS under Section 194H is not applicable if:

  • Commission or brokerage paid during a financial year does not exceed ₹15,000 per payee.
  • Payments are made by individuals/HUFs not liable for a  tax audit .
  • Certain specified transactions, such as bank guarantee commission, are exempt.

Cases in which TDS is Not Deducted

  • Commission paid by banks to their employees (salary component).
  • Commission on insurance renewal (subject to separate provisions).
  • Direct trade discounts given to customers (not commission).

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Things to Remember / Key Points about TDS on Commission and Brokerage

  • Deduct TDS at 5% if payment & ₹15,000 in a financial year.
  • Deposit the TDS with the government within the due date.
  • Issue TDS certificate (Form 16A) to the payee.
  • File quarterly TDS returns (Form 26Q) for compliance.
  • Higher TDS (20%) if PAN is not provided.
Vineet Goyal
Vineet Goyal
Chartered Accountant
MRN No.: 411502
City: Delhi

I am a chartered accountant with over 14 years of experience. I understand income tax, GST, and balancing financial records. I analyze financial statements and tax codes effectively. However, I also have a passion for writing, which is different from working with numbers. Recently, I started writing articles and blog posts. My goal is to make finance easier for everyday people to understand.

Frequently Asked Questions

  • What is the current TDS rate under Section 194H (FY 2025-26)?

    For FY 2025–26, Section 194H generally provides a 5% TDS rate on commission or brokerage paid to a resident, assuming a valid PAN is furnished and no higher-rate provisions apply. For specified non-filers or cases without PAN, a higher effective rate may apply under other sections like 206AB/206AA.

  • Is there a threshold limit for 194H TDS deduction, and what is it now?

    Yes. TDS under Section 194H is generally required only when total commission or brokerage paid or credited to a payee in a financial year exceeds ₹15,000. If the aggregate amount stays below this threshold for that payee in the year, TDS under 194H is normally not deducted.

  • What happens if the payee does not provide a valid PAN under 194H?

     If the payee does not provide a valid PAN, the deductor may have to deduct TDS at a higher rate, often 20% or the rate in force, whichever is higher, as per general higher-TDS rules. This increases the tax cut and can create cash-flow and refund issues for the payee.

  • Does 194H TDS apply for insurance commission or professional services?

     Section 194H applies to commission or brokerage, not to all types of income. Insurance commission is usually covered under a separate TDS section, and professional services are covered under Section 194J. So, 194H is mainly for agency-type commission or brokerage arrangements, not for insurance or professional fee payments.

  • When should TDS be deducted — on payment or credit?

     Under Section 194H, TDS must be deducted at the earlier of.

    • The date of credit of commission or brokerage to the payee’s account (including suspense or intermediary accounts), or
    • The date of actual payment in cash, cheque, draft or any other mode.
      Whichever happens first triggers TDS deduction.
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