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

Section 194H of the Income Tax Act, 1961 governs the deduction of Tax Deducted at Source (TDS) on commission and brokerage payments (excluding insurance commission). Under this provision, TDS is applicable at the rate of 2% if the total commission or brokerage paid to a resident exceeds ₹20,000 in a financial year.

The responsibility to deduct TDS under Section 194H lies with any resident person or entity, including individuals and Hindu Undivided Families (HUFs), provided their gross receipts, turnover, or sales in the preceding financial year exceed:

₹1 crore in case of a business, or
₹50 lakhs in case of a profession.

In this article, we will explain TDS on commission and brokerage under Section 194H, covering its meaning, applicability, threshold limit, exclusions, and practical examples for better understanding.

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Latest Update on TDS under Section 194H

Reduced TDS Rate:

Effective 1st October 2024, the TDS rate on commission or brokerage payments (except for insurance commission) has been reduced from 5% to 2%. However, if the payee does not provide a valid PAN, TDS will be deducted at the higher rate of 20%.

Revised Threshold Limit:

From 1st April 2025, the threshold limit for TDS deduction under Section 194H will increase from Rs. 15,000 to Rs. 20,000 per financial year. This means that no TDS will be deducted if the total commission or brokerage paid to a person during the year does not exceed Rs. 20,000.

What is Section 194H?

Section 194H of the Income Tax Act, 1961 deals with Tax Deducted at Source (TDS) on payments made as commission or brokerage. Under this provision, TDS must be deducted at the rate of 2% if the commission or brokerage paid during a financial year exceeds the prescribed threshold ( ₹20,000) .

Section 194H of the Income Tax Act

Threshold Limit under Section 194H

No TDS is required to be deducted if the total commission or brokerage paid or credited during a financial year does not exceed ₹15,000 (up to 31st March 2025).
From 1st April 2025, the threshold limit will increase to ₹20,000 per financial year.

This means that if the total commission or brokerage paid to a person in a financial year does not cross ₹20,000, no TDS is required under this section.

Applicability of Section 194H

Section 194H applies to any person responsible for paying commission or brokerage to a resident individual or entity.

It also applies to individuals and Hindu Undivided Families (HUFs) if their total sales, turnover, or gross receipts in the preceding financial year exceeded the limits specified under Section 44AB, namely:

₹1 crore in the case of a business, or
₹50 lakhs in the case of a profession.

In such cases, the payer is required to deduct TDS at the time of credit or payment, whichever occurs earlier.

Exclusions under Section 194H

Certain types of payments are specifically excluded from the scope of Section 194H, such as:

Insurance Commission: Payments made for insurance commission are covered under Section 194D and not under Section 194H.
Professional Services: Payments made for professional services—such as those rendered by doctors, lawyers, architects, chartered accountants, and technical consultants—are governed by Section 194J, not 194H.
Discounts and Trade Incentives: Normal trade discounts or cash discounts offered by a manufacturer or wholesaler to a retailer or distributor, which are not in the nature of commission, are also outside the scope of Section 194H.

Rate of TDS under Section 194H

The applicable rate of TDS under Section 194H is 2%.
No surcharge, health and education cess will be levied on this rate. However, if the deductee fails to provide a valid PAN, TDS will be deducted at a higher rate of 20%.

What is the Meaning of Commission and Brokerage?

Under Section 194H of the Income Tax Act, the term commission or brokerage refers to any payment received or receivable, directly or indirectly, by a person acting on behalf of another person.

This includes payments made:

For services rendered (other than professional services),
For services related to the buying or selling of goods, or
For facilitating transactions concerning any asset, valuable article, or thing (excluding securities).

Definition of Commission and Brokerage:

Commission: Payment for services rendered (excluding professional services) or for assisting in the buying or selling of goods, or for facilitating transactions concerning any asset, valuable article, or thing (excluding securities).
Brokerage: Fee paid to a broker or intermediary who connects buyers and sellers in sectors such as real estate, insurance, stocks, or commodities. Brokerage can be a fixed amount or a percentage of the transaction value.

In short, both commission and brokerage represent payments made to agents or intermediaries for enabling or facilitating transactions on behalf of another person.

Section 194H – TDS Deposit and Return Filing Due Dates

The due dates for depositing TDS and filing TDS returns under Section 194H of the Income Tax Act, 1961 are as follows:

TDS Return Filing Due Dates (Form 26Q)

1st Quarter (April – June 2025): On or before 31st July 2025
2nd Quarter (July – September 2025): On or before 31st October 2025
3rd Quarter (October – December 2025): On or before 31st January 2026
4th Quarter (January – March 2026): On or before 31st May 2026

TDS Deposit Due Dates

For deductions made from April 2025 to February 2026: On or before the 7th of the following month
For deductions made in March 2026: On or before 30th April 2026

Example:

If TDS is deducted on 25th April 2025, it must be deposited by 7th May 2025.
If TDS is deducted on 15th March 2026, it must be deposited by 30th April 2026.

What are the Inclusions of TDS in commission and brokerage?

Tax Deducted at Source (TDS) on commission and brokerage covers a range of services. The inclusions are as follows:

Services Provided, Except Professional Services: TDS applies to most services rendered for commission or brokerage, excluding those that fall under professional services.
Services Related to Purchase or Sale of Products: Any service provided in connection with buying or selling products is subject to TDS. This includes brokerage for transactions involving goods.
Services Connected to Transactions Involving Assets or Valued Items: TDS applies to services associated with transactions involving assets or valuable items, excluding securities. This covers various types of transactions where brokers or agents are involved in facilitating deals.

What are the Exemptions of TDS in commission and brokerage?

Certain commissions and brokerages are exempt from TDS under Section 194H. The exemptions include:

Payments by RBI: Commissions and brokerages paid by the Reserve Bank of India (RBI) to financial institutions are exempt from TDS.
Underwriters’ Commissions: Commissions paid to underwriters of insurance policies or loans are not subject to TDS.
Public Offering Fees: Brokerage fees related to the public offering of securities are exempt from TDS.
Stock Market Transactions: This section does not cover brokerage fees for transactions involving securities listed on the stock market.
LIC and Cooperative Societies: Commissions related to LIC insurance or investments in cooperative societies are exempt from TDS.
Financial Corporations: Payments made to Financial Corporations under the Central Finance Bill are excluded from TDS.
Income Tax Refunds: Payments made as income tax refunds do not attract TDS on commission or brokerage.
Direct Taxes: The payment of direct taxes is exempt from TDS on commission and brokerage.
Interest Earnings: Interest earned on savings bank accounts, regular deposits, NSC, Kisan Vikas Patra, and Indira Vikas Patra is not subject to TDS.
NRE Account Interest: Interest from Non-Resident External (NRE) accounts is exempt from TDS.
Franchisee Payments: Commissions or brokerage payments made to franchisees of public call offices by Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL) are exempt.
NIL TDS Institutions: Income received from public or private institutions designated as NIL TDS organisations is not subject to TDS.
Motor Vehicle Claims Tribunal: Interest revenue received as compensation from the Motor Vehicles Claims Tribunal is excluded from TDS.

Example of TDS on Commission and Brokerage under Section 194H

Let’s understand how TDS is calculated under Section 194H with a practical example:
A company pays ₹50,000 as commission to a property agent in October 2024.
The agent has provided a valid PAN.
TDS Calculation:
Applicable TDS rate from 1st October 2024 = 2%
TDS to be deducted = 2% of ₹50,000 = ₹1,000
The net payment to the agent after TDS = ₹50,000 − ₹1,000 = ₹49,000
Key Points to Remember:
If the agent does not provide PAN, TDS will be deducted at 20%.
No TDS is required if the total commission or brokerage in the financial year is below ₹20,000 (threshold effective from 1st April 2025).
TDS must be deposited with the government within the prescribed due date.
TDS is applicable regardless of the payment mode—cash, cheque, or bank transfer.
By deducting TDS at the time of payment or credit, the payer ensures compliance with Section 194H, and the payee can later claim credit for the TDS while filing income tax returns.

When is TDS Deductible under Section 194H?

TDS is deductible under Section 194H of the Income Tax Act of 1961 when income related to commission or brokerage is credited to the payee's account or any other account. This tax deduction at source (TDS) is applicable even if the income is recorded in suspense accounts or under a different name. The deduction must occur at the time of payment, whether made in cash, by cheque, or by draft.

When is TDS not Deductible under Section 194H?

TDS is not deductible under Section 194H in certain circumstances. Specifically, if the total amount of brokerage or commission income in a financial year falls below the threshold of ₹15,000, no deductions are required under this section. Additionally, under Section 197, an individual may apply to the assessing officer for a deduction at a reduced tax rate or even at zero percent. In such cases, Section 194H will not be used, allowing for a lower or no tax deduction.

How to get TDS at a Lower rate?

To secure a reduced or nil TDS rate, the deductee must submit a request to the assessing officer. This request involves a few key steps:

197 Certification Submission: The deductor must provide 197 certifications to validate the deductee's PAN.
Certificate Verification: The certificate should contain accurate information, including the desired rate, financial year, PAN, relevant sections, and more.
Threshold Limit Adherence: Ensure that quarterly TDS deductions do not exceed the threshold limit mentioned in the certificate.
Correct Certificate Number: Quote the certificate number accurately in your request.

Once the assessing officer verifies these steps, they may approve the deductee's application for a reduced or nil TDS rate. When applying, provide the following information:

Assessee's name and address
PAN details
Reason for payment
Income details from the previous three years
Projected income for the current financial year
Tax payments made in the previous three years
Tax payments made for the current financial year

Key Points to Remember about TDS on Commission and Brokerage

If commission or brokerage is subject to GST, TDS is deducted only on the basic amount, excluding the GST component.
TDS is applicable when the aggregate commission or brokerage exceeds ₹20,000.
Even if the agent adjusts or retains the commission while making the payment, TDS must still be deposited with the government.
When TDS is deducted by or on behalf of the government, it must be deposited on the same day.
TDS must be deducted even if the payment is made in cash, by cheque, or through any other mode.
If the amount is credited to a suspense account or any other account under a different name, TDS must still be deducted.

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