Section 194H of Income Tax Act - TDS on Commission and Brokerage

Introduction

Section 194H of the Income Tax Act governs the Tax Deducted at Source (TDS) on commission and brokerage paid by an individual or a company. The TDS on commission and brokerage is a way for the Income Tax Department to ensure that taxes are deducted from payments made for services like sales commissions, agent fees, or brokerage. In Financial Year 2025-26, the TDS rate for commission and brokerage has been updated as per the Budget 2025 provisions. Understanding Section 194H is essential for businesses and individuals involved in paying or receiving commissions and brokerage fees. This guide explains Section 194H, its applicability, the TDS rates, and the procedures for deduction and filing.

What is Section 194H?

Section 194H deals with TDS on commission and brokerage. It applies when a person (the payer) makes a payment of commission or brokerage to a person (the payee) for services like sales commissions, agent fees, and brokerage for transactions. The payer is responsible for deducting tax at source and remitting it to the Income Tax Department.

Key points:

1. Scope: Section 194H applies to individuals, companies, and businesses that make payments for commission or brokerage.
2. TDS Deduction: The payer is responsible for deducting TDS before making the payment to the payee.
3. Purpose: The section ensures that taxes are collected at the source of income, making the tax collection process more efficient.
4. Threshold Limit: TDS is applicable only if the commission or brokerage paid during the financial year exceeds a certain threshold amount.

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What is the Meaning of Commission and Brokerage under Section 194H?

Term

Simple Meaning

Examples

Commission

A payment for services that are rendered on behalf of another person, often a percentage of a sale or transaction value.

A sales executive gets a percentage of every product they sell for a company. This is a sales commission.

Brokerage

A fee paid to an agent or 'middleman' for bringing two parties together to complete a deal or a transaction.

A property dealer who gets a fee for helping you buy a house or a stock market agent who helps you buy shares.

Key Points to Note:

• Services Covered: This section covers payments made for services other than professional services (like a lawyer's fee or a doctor's fee, which come under a different section, 194J).

• What is NOT Commission:

  • Employee Salary: If the payment is made to a full-time employee as part of their salary (even if it's called a 'sales commission'), TDS is deducted under the salary section (192), not 194H.
  • Insurance Commission: Commission paid to an insurance agent falls under a separate section, 194D.
  • Securities: Brokerage on buying or selling shares on a recognised stock exchange is generally not covered by this section.

What is the Rate of TDS under Section 194H?

The updated rates applicable for the entire Financial Year 2025-2026 (starting April 1, 2025) are given below:

Condition

TDS Rate (Percentage)

What it Means

If the agent provides their PAN (Permanent Account Number)

2%

You deduct 2 rupees for every 100 rupees of commission/brokerage paid.

If the agent does NOT provide their PAN

20%

You must deduct a much higher tax (20 rupees for every 100 rupees). This is done to make sure people use their PAN and follow tax rules.

Example: If you pay a broker ₹50,000 commission and they give you their PAN: TDS is 50,000×2%=₹1,000. The broker receives ₹50,000−₹1,000=₹49,000. The ₹1,000 is sent to the government.

When Does TDS under Section 194H Need to Be Deducted?

TDS under Section 194H must be deducted at the time of payment or crediting the amount, whichever happens first.

Important Points:

1. When to Deduct: TDS should be deducted at the time of payment or credited to the payee’s account.
2. Advance Payments: TDS is deducted on advance payments as well.
3. Income Accrual: Even if the commission or brokerage is not paid immediately, TDS must be deducted when the income accrues or is credited to the payee's account.

Under what circumstances is TDS u/s 194H not deductible?

TDS under Section 194H is not required in the following cases:

1. No Payment or Commission: If there is no payment of commission or brokerage to the recipient.
2. Small Amounts: If the total commission or brokerage paid during the year is below the threshold limit, which is typically ₹15,000.
3. Income Below Taxable Limit: If the payee’s income is below the taxable limit, they submit Form 15G or Form 15H to claim exemption.

Section 194-H TDS Deposit Due Date

When the Tax is Deducted

Due Date for Deposit with the Government

Tax deducted in any month from April to February

On or before the 7th day of the next month.

Example: Tax deducted in August 2025 must be deposited by September 7, 2025.

Tax deducted in March (The last month of the financial year)

On or before April 30 (of the new financial year).

TDS at a Lower Rate

If an agent (the person getting the commission) thinks their yearly income is too low for the standard 2% TDS, they can apply to the Income Tax Department for a Lower Deduction Certificate.

• How: The agent applies using Form 13.
• Result: The Income Tax Officer issues a certificate allowing deduction at a lower rate (e.g., 0% or 1%).
• Action: The person paying the commission must use the rate mentioned in the certificate instead of the standard 2%.

Important Points to Remember (Section 194H)

Point

Key Rule

PAN is Crucial

Always get the agent's PAN. Without it, the TDS rate increases sharply from 2% to 20%.

TDS on Full Amount

Deduct TDS on the entire commission amount, as soon as the yearly total crosses the ₹20,000 limit.

GST is Ignored

Deduct TDS only on the basic commission amount, not on the GST component (if shown separately).

TDS Certificate

Issue Form 16A (TDS Certificate) to the agent every quarter. This is their proof of tax deduction.

Quarterly Return

As a deductor, you must file a quarterly TDS statement (Form 26Q) with the government.

Conclusion

Section 194H ensures that TDS is deducted on commission and brokerage payments, which helps the Income Tax Department collect taxes at the source. The TDS rate for commission and brokerage is set at 10% for residents and 20% for non-residents. Ensuring timely deduction and compliance with TDS filing requirements is crucial for both businesses and individuals. By understanding Section 194H and its provisions, businesses can manage tax deductions and ensure they remain compliant with Income Tax regulations.