194H vs 194D: Key differences
- Bhavika Rajput
- Apr 30
- 10 min read
Sections 194H and 194D of the Income Tax Act, 1961 govern the Tax Deducted at Source (TDS) on commission and brokerage payments in India. While both sections deal with TDS, they apply to different types of payments. Section 194H focuses on commission or brokerage paid in various business transactions, excluding insurance commissions, whereas Section 194D specifically addresses insurance commissions. With updates effective from FY 2024-25 and FY 2025-26, including changes in threshold limits and TDS rates, it is crucial for taxpayers to understand how these two sections differ in their application and compliance requirements.
Table of Contents
194H vs 194D: Overview of the Key Differences
Sections 194H and 194D of the Income Tax Act, 1961 are crucial when dealing with Tax Deducted at Source (TDS) on commission payments in India. While both sections regulate TDS on commissions, they apply to different categories of payments and come with distinct rules. The differences between these two sections are important for businesses, insurance companies, and individuals who are involved in commission-related transactions. This section elaborates on these key differences by covering the nature of the payments, TDS rates, threshold limits for TDS deduction, timing of TDS, and exemptions under both sections, especially considering recent updates under the Budget 2025.
Nature of Payments Covered Under Sections 194H and 194D
Section 194H: Commission and Brokerage
Section 194H applies to commission or brokerage payments made in the course of business, trade, or profession. These payments are not limited to one specific sector and can arise from the sale or purchase of goods, services, or assets. For example:
Sales agents earning commission from product sales.
Stockbrokers receiving brokerage for executing buy/sell orders.
Distributors or franchisees receiving commissions on sales targets met.
However, it is important to note that insurance commissions are explicitly excluded from Section 194H and fall under Section 194D.
Section 194D: Insurance Commission Section 194D is designed to cover insurance commissions paid to individuals or entities that solicit or procure insurance business. This includes commissions earned from activities such as:
Selling or renewing life insurance policies.
Selling or renewing general insurance policies.
Reviving policies or performing other insurance-related services.
The key distinction here is that insurance commission under Section 194D is treated separately from other types of commission payments, such as those paid to sales agents or brokers under Section 194H. This makes Section 194D highly specific to the insurance sector, ensuring that commissions earned from insurance activities are separately regulated.
Threshold Limits for TDS Deduction (FY 2024-25 & FY 2025-26)
Both Sections 194H and 194D were updated with new threshold limits for TDS deduction in the Union Budget 2025, effective from FY 2025-26. Here's a comparison of the old and revised threshold limits:
Section | Threshold Limit (FY 2024-25) | Threshold Limit (FY 2025-26) |
194H (Commission/Brokerage) | ₹15,000 | ₹20,000 |
194D (Insurance Commission) | ₹15,000 | ₹20,000 |
Threshold Limit Changes: Prior to FY 2024-25, the threshold for both Sections 194H and 194D was set at ₹15,000. From FY 2025-26 onwards, this limit has been raised to ₹20,000. This means that TDS will now only be deducted if the commission or brokerage amount exceeds ₹20,000 in the respective financial year. The increase in threshold limits provides relief to taxpayers who earn smaller commission payments, as TDS will not apply until the threshold is crossed.
TDS Rates for 194H and 194D
The TDS rates under both Sections 194H and 194D differ, and there have been significant changes in recent years, particularly with the reduction of TDS rates under Section 194H:
Section 194H:
Before October 2024: The TDS rate for individuals and HUFs was 5% on commission payments.
From October 2024: The rate will be reduced to 2% for individuals and HUFs.
PAN Not Provided: If the payee does not provide their PAN, the TDS rate increases to 20% under both sections.
For Domestic Companies: Domestic companies generally deduct TDS at a rate of 5%, though in specific circumstances, this could vary.
Section 194D:
For Individuals and HUFs: The TDS rate is 5% on insurance commission payments.
For Domestic Companies: The TDS rate is 10% on insurance commission payments.
Reduced Rates: For certain micro-insurance commissions from FY 2025-26, reduced rates may be applied, but the standard rate of 5% for individuals will largely remain applicable.
The reduction of the TDS rate under Section 194H to 2% from October 2024 is a notable change. This reduction is aimed at easing the tax burden for individuals and HUFs earning commission income, especially those involved in small-scale commission-based work.
Timing of TDS Deduction for 194H and 194D
Both Sections 194H and 194D have similar provisions regarding the timing of TDS deduction:
TDS is required to be deducted either:
When the commission is credited to the payee's account, or
When the commission is paid to the payee, whichever occurs earlier.
This ensures that tax is deducted as soon as the commission amount is either recognized in the books of accounts (credited) or transferred to the payee (paid). This timely deduction aligns with the overall aim of TDS, ensuring that the government collects tax at the point of payment or credit.
Applicability and Deductors of 194H and 194D
Section 194H applies to any person (except individuals or HUFs with specified turnover limits) who pays commission or brokerage to a resident. This could include businesses, companies, or individuals who are paying commissions to agents, brokers, or intermediaries involved in their operations.
Section 194D applies to any person responsible for paying insurance commissions to a resident individual or entity. This section is clearly intended for insurance companies or individuals involved in the sale or procurement of insurance products, as it exclusively covers insurance-related commission payments.
Exemptions and Special Cases Under Sections 194H and 194D
Section 194H: There are no special exemptions for Section 194H, but if the total commission payment to a payee in a financial year is below the threshold limit (₹15,000 until FY 2024-25, ₹20,000 thereafter), TDS is not applicable. Additionally, insurance commissions are explicitly excluded from Section 194H and fall under Section 194D.
Section 194D: This section has provisions for exemptions based on thresholds and payee submissions:
If the commission amount is below the threshold limit, no TDS is required.
If the payee submits Form 15G or 15H (for individuals whose total income is below the taxable limit), TDS will not be deducted, even if the commission exceeds the threshold.
Recent Updates and Budget 2025 Impact
In the Union Budget 2025, significant changes have been introduced:
Threshold Limit Increase: The threshold limit for TDS deduction has been increased from ₹15,000 to ₹20,000 for both Sections 194H and 194D, effective from FY 2025-26. This will reduce the burden of TDS for smaller commission transactions.
Rate Reduction for Section 194H: The TDS rate for commission payments under Section 194H will be reduced from 5% to 2% for individuals and HUFs starting from October 2024. This aims to make compliance easier for smaller businesses and individuals receiving commission-based income.
These updates will allow taxpayers to retain more of their commission income before TDS is deducted and provide additional flexibility in terms of tax planning.
Summary Table: Key Differences Between 194H and 194D
Feature | Section 194H | Section 194D |
Type of Commission | Commission/Brokerage (excluding insurance) | Insurance Commission |
Threshold Limit FY 2024-25 | ₹15,000 | ₹15,000 |
Threshold Limit FY 2025-26 | ₹20,000 | ₹20,000 |
TDS Rate FY 2024-25 | 5% (Individuals/HUF) | 5% (Individuals/HUF), 10% (Domestic Companies) |
TDS Rate FY 2025-26 | 2% (Individuals/HUF, from Oct 2024) | 5% (Individuals/HUF), 10% (Domestic Companies) |
PAN Not Provided TDS Rate | 20% | 20% |
Applicability | Any person paying commission/brokerage | Any person paying insurance commission |
Time of Deduction | At payment or credit, whichever earlier | At payment or credit, whichever earlier |
Exemptions | Commission below threshold; Insurance commission excluded | Commission below threshold; Form 15G/15H submission |
Conclusion
In summary, Sections 194H and 194D cover commission payments but cater to different sectors: Section 194H applies broadly to commissions on business transactions, while Section 194D specifically covers insurance commissions. With updates in Budget 2025, including higher threshold limits and reduced TDS rates under Section 194H, both sections offer more flexibility for taxpayers. Understanding these distinctions will help ensure compliance and optimize tax planning for individuals and businesses involved in commission payments.
Frequently Asked Question (FAQs)
1. What is the difference between commission under Section 194H and Section 194D?
The key difference lies in the nature of the commission. Section 194H applies to general commission or brokerage payments, which include commissions earned from the sale or purchase of goods, services, or other assets. This can apply to commissions paid to sales agents, stockbrokers, or other intermediaries involved in business transactions.
In contrast, Section 194D specifically covers insurance commission payments. These are commissions paid to individuals or entities who procure, solicit, or renew insurance policies. It applies only to commissions related to life insurance, general insurance, and other insurance products.
Thus, while both sections deal with commission payments, Section 194H has a broader scope, whereas Section 194D is exclusively focused on insurance-related commissions.
2. How do the threshold limits for TDS differ under Section 194H and 194D?
For both Section 194H and Section 194D, the threshold limit for TDS has been revised as per the Union Budget 2025. Previously, the threshold for TDS was ₹15,000 for both sections. However, from FY 2025-26, the threshold limit has been raised to ₹20,000 for both sections.
This change means that TDS will now only be deducted if the total commission payment exceeds ₹20,000 in a financial year, giving businesses and individuals receiving smaller commission payments more room before TDS applies.
3. What is the TDS rate for commission payments under Section 194H in FY 2024-25?
In FY 2024-25, the TDS rate for commission or brokerage payments under Section 194H is 5% for individuals and HUFs (Hindu Undivided Families). However, if the payee does not provide their PAN (Permanent Account Number), the TDS rate increases to 20%.
From October 2024, the TDS rate will be reduced to 2% for individuals and HUFs, providing relief to smaller businesses and individual earners receiving commission payments.
4. Is the TDS rate the same for insurance commissions under Section 194D?
No, the TDS rate under Section 194D is different from Section 194H. For insurance commission payments:
The TDS rate is 5% for individuals and HUFs.
The rate increases to 10% for domestic companies.
This rate remains constant for FY 2024-25, with potential adjustments in the future for micro-insurance commissions, but for the majority of insurance commission payments, it is 5%.
5. When is TDS deducted under both Section 194H and Section 194D?
TDS under both Sections 194H and 194D is deducted at the earliest of the following two events:
When the commission is credited to the payee's account.
When the commission is paid to the payee.
Essentially, TDS is deducted at the time the commission is either recorded in the payee's account or when the payee actually receives the payment. This ensures that tax is deducted as soon as the income is earned or received.
6. Can I claim an exemption for TDS under Section 194H?
Yes, there are certain exemptions under Section 194H. If the commission paid is below the threshold limit (₹15,000 until FY 2024-25 and ₹20,000 from FY 2025-26), no TDS is deducted. Furthermore, if the payee submits Form 15G or 15H (applicable for individuals whose total income is below the taxable limit), TDS may not be deducted, even if the commission amount exceeds the threshold.
7. How does Budget 2025 impact the threshold limits for TDS under these sections?
Budget 2025 introduced an important change by raising the threshold limit for TDS deduction under both Section 194H and Section 194D. The limit was increased from ₹15,000 to ₹20,000. This change means that TDS will not apply to commission payments under these sections until the total amount exceeds ₹20,000 in a financial year. The increase in the threshold provides relief for smaller transactions, allowing taxpayers to retain more income before TDS is deducted.
8. Are insurance commissions under Section 194D subject to TDS in the same way as other commissions under Section 194H?
While both Sections 194H and 194D apply to commission payments, the treatment of TDS is slightly different. Insurance commissions under Section 194D are subject to the same general principles as other commissions under Section 194H, meaning they are deducted when the commission is credited or paid. However, insurance commission payments are subject to a different TDS rate and are exclusively governed by Section 194D. Thus, while the timing of TDS deduction is similar, the rate and the type of commission payment vary.
9. What documents are required for claiming exemptions under Section 194D?
To claim exemptions under Section 194D, the payee must submit Form 15G or 15H to the deductor. These forms are specifically for individuals who are not liable to pay tax due to their income being below the taxable threshold. Form 15G is used by individuals below the age of 60, while Form 15H is for senior citizens above the age of 60. These forms help ensure that TDS is not deducted on insurance commission payments, provided the payee's total income is below the taxable limit.
10. Are there any special provisions for micro-insurance under Section 194D?
Yes, there are special provisions for micro-insurance under Section 194D. From FY 2025-26, reduced TDS rates may apply for micro-insurance commissions. These provisions aim to encourage the distribution of insurance products in rural areas and to low-income individuals by reducing the TDS burden. The specifics of the reduced rates will depend on the details provided in subsequent notifications by the government.
11. How does the new TDS rate of 2% under Section 194H affect commission payments?
The reduction of the TDS rate to 2% under Section 194H (for individuals and HUFs) from October 2024 will significantly ease the tax burden for smaller businesses and individuals receiving commission payments. Prior to this, the rate was 5%, which was a higher deduction for individuals. The lower rate allows taxpayers to retain more of their commission income, particularly benefiting those engaged in small-scale commission-based businesses.
12. Can commission payments under Section 194H include both business transactions and services?
Yes, commission payments under Section 194H can cover a wide range of business transactions. It includes commissions earned not only from the sale or purchase of goods but also from the provision of services. For example, commissions can be paid to sales agents in service industries like real estate, travel, or stockbroking. The key point is that the payment must be for a service or transaction related to the business or profession of the payee.
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