How to file TDS return for 194H deductions
Rashmita Choudhary- Apr 30
- 8 min read
Updated: May 12
Filing a TDS return for Section 194H deductions is crucial for businesses or individuals who pay commission or brokerage to residents. This section of the Income Tax Act requires the deduction of TDS when payments exceed a certain threshold limit. The process involves ensuring compliance with tax laws, deducting the correct amount of TDS, depositing it on time, and filing the appropriate forms.
Table of Contents
How to File TDS Return for 194H Deductions?
To file a TDS return under Section 194H, first ensure that TDS is deducted at the time of payment or credit for commissions or brokerage exceeding the threshold limit. The TDS must be deposited with the government using the Tax Deduction Account Number (TAN) within the prescribed due dates. After the deposit, you need to file Form 26Q quarterly, reporting details such as the deductor’s and deductee’s PAN, the amount paid, TDS deducted, and the deposit. Finally, issue Form 16A to the payee, confirming the deduction and deposit of TDS.
What is Section 194H?
Section 194H of the Income Tax Act, 1961, is a provision that mandates the deduction of tax at source (TDS) on commission or brokerage payments made to residents. The responsibility of deducting TDS lies with the payer, who must apply the prescribed TDS rate when the commission or brokerage paid during the financial year exceeds the specified threshold limit. This section applies to a broad range of entities, including individuals, firms, companies, and other organizations that make such commission or brokerage payments.
This section aims to ensure that the government collects taxes from income earned in the form of commissions and brokerage payments before the funds are transferred to the payee. TDS acts as a mechanism for the government to receive tax revenue in advance, rather than waiting for the payee to declare the income in their income tax returns.
Key Points for Section 194H TDS:
Threshold Limit: TDS is required when commission or brokerage paid exceeds ₹15,000 in a financial year for FY 2024-25. For FY 2025-26, this threshold limit is raised to ₹20,000. If the commission or brokerage does not exceed this limit, no TDS needs to be deducted.
TDS Rate: For FY 2024-25, the prescribed TDS rate for commission or brokerage payments under Section 194H is 5%. This rate is reduced to 2% for FY 2025-26, as per the latest budget revisions.
Time of Deduction: TDS must be deducted at the time of payment or at the time of credit, whichever occurs earlier. This means that if the payment is made before the commission is credited, the payer should deduct TDS when the payment is made. If the commission is credited first, TDS must be deducted at that time.
PAN Requirement: The payee's PAN must be quoted while making the payment. If the payee’s PAN is not provided, a higher TDS rate of 20% will apply. Therefore, verifying the PAN details before making payments is essential to ensure that the correct TDS rate is applied.
Steps to File TDS Return for Section 194H Deductions
Filing a TDS return for Section 194H deductions involves multiple steps that ensure the correct amount of TDS is deducted, deposited, and reported to the government. The process is straightforward but requires strict adherence to timelines and accurate reporting.
Step 1: Deduct TDS at the Time of Payment or Credit
The first step is to deduct TDS when commission or brokerage exceeds the threshold limit. For FY 2024-25, the threshold is ₹15,000, and the TDS rate is 5%. For FY 2025-26, the threshold increases to ₹20,000, with the TDS rate reducing to 2%. Ensure that the deduction is made at the time of payment or when the commission is credited, whichever happens first.
Step 2: Deposit TDS with Government
Once the TDS is deducted, the next step is to deposit the deducted TDS amount with the government. This must be done using the Tax Deduction Account Number (TAN), which identifies the entity responsible for the TDS deduction. The payment due date is typically the 7th of the next month after the deduction. For March deductions, the due date is extended to April 30th. Timely payment ensures that no interest or penalties are imposed for late deposit.
Step 3: File TDS Return (Form 26Q)
After depositing the TDS, the payer must file a TDS return using Form 26Q. This form is used to report TDS deducted on payments other than salaries. The form must include details such as the TAN, PAN of the deductor, PAN of the deductee, amount paid, TDS deducted, and the date of deposit.
The due dates for filing TDS returns under Section 194H are as follows:
31st July for the first quarter (April-June)
31st October for the second quarter (July-September)
31st January for the third quarter (October-December)
31st May for the fourth quarter (January-March)
Step 4: Issue TDS Certificate to Payee
After filing the TDS return, the payer must issue Form 16A to the payee. This certificate acts as proof that the TDS has been deducted and deposited with the government. The payee uses this form to claim credit for the TDS amount while filing their own income tax return.
Important Compliance Notes
Audit Requirement: Individuals or entities that are required to undergo a tax audit under Section 44AB (i.e., those with a turnover exceeding ₹1 crore or professional receipts exceeding ₹50 lakhs) are required to deduct TDS under Section 194H. If the entity is not liable for audit, they may not be required to deduct TDS.
Non-Compliance Penalties: Failure to comply with the TDS provisions, including late filing of returns or non-deduction of TDS, can attract penalties and interest as per the Income Tax Act. Penalties may include a fine and interest on the amount of TDS that was not deducted or deposited on time.
PAN Verification: Ensure the payee’s PAN is accurate and provided at the time of payment. If the payee fails to provide a PAN, the payer will have to deduct TDS at a higher rate of 20%. Therefore, verifying PAN details at the time of deduction is critical.
Summary Table of Section 194H TDS for FY 2024-25 and FY 2025-26
Parameter | FY 2024-25 | FY 2025-26 (From 1 April 2025) |
Threshold Limit | ₹15,000 | ₹20,000 |
TDS Rate | 5% | 2% |
TDS Return Form | Form 26Q | Form 26Q |
TDS Payment Due Date | 7th of next month (30 April for March) | Same as FY 2024-25 |
TDS Return Filing Due Date | Quarterly (31 July, 31 Oct, 31 Jan, 31 May) | Same as FY 2024-25 |
Conclusion
Filing the TDS return for Section 194H deductions is essential for compliance with the Income Tax Act. By following the steps of deducting, depositing, filing returns, and issuing certificates, you ensure that all TDS requirements are met. This process not only helps avoid penalties but also ensures smooth tax reporting for both the payer and the payee.
Frequently Asked Question (FAQs)
What is Section 194H of the Income Tax Act?
Section 194H of the Income Tax Act, 1961, mandates the deduction of tax at source (TDS) on commission or brokerage payments made to residents. This applies to all individuals, firms, companies, or entities making such payments, provided the commission or brokerage exceeds the prescribed threshold limit. The payer is responsible for deducting TDS and depositing it with the government.
How do I file a TDS return under Section 194H?
To file a TDS return under Section 194H, first, ensure that TDS is deducted at the time of payment or credit for commissions or brokerage exceeding ₹15,000 (₹20,000 from FY 2025-26). After deduction, deposit the TDS to the government using your TAN. Then, file the TDS return quarterly using Form 26Q, reporting all relevant details such as the deductor’s and deductee’s PAN, TDS amount deducted, and payment dates.
What are the applicable TDS rates for Section 194H in FY 2024-25 and FY 2025-26?
For FY 2024-25, the TDS rate for commission or brokerage payments under Section 194H is 5%. For FY 2025-26, the TDS rate is reduced to 2%, as per the latest budget amendments.
What is the threshold limit for TDS under Section 194H?
For FY 2024-25, the threshold limit for TDS under Section 194H is ₹15,000. This means TDS must be deducted if the total commission or brokerage paid during the year exceeds this limit. From FY 2025-26 onwards, the threshold limit is increased to ₹20,000.
When should TDS be deducted under Section 194H?
TDS should be deducted at the time of payment or when the commission or brokerage is credited, whichever occurs earlier. This ensures timely compliance with the law and prevents any penalties for delayed deduction.
What is Form 26Q and why is it required for filing TDS returns under Section 194H?
Form 26Q is a quarterly return used to report TDS deductions on payments other than salary, including commission and brokerage under Section 194H. It is required to be filed by the payer to disclose the details of TDS deducted, including the TAN, PAN of the deductor and deductee, and the amount paid.
What are the due dates for filing TDS returns under Section 194H?
The due dates for filing TDS returns using Form 26Q are:
31st July for the first quarter (April–June)
31st October for the second quarter (July–September)
31st January for the third quarter (October–December)
31st May for the fourth quarter (January–March)
How can I check if the payee’s PAN is valid?
The validity of the payee's PAN can be checked through the Income Tax Department’s official website, where there is a tool to verify PAN details. It is important to verify the PAN before making payments to ensure that the correct TDS rate is applied, as failing to provide a valid PAN may result in the application of a higher TDS rate of 20%.
What happens if TDS is not deducted or deposited on time?
Failure to deduct or deposit TDS on time attracts penalties and interest. Interest is charged at 1.5% per month or part of a month on the late payment, and penalties can also apply for non-deduction or non-deposit of TDS. These penalties can increase over time, making timely compliance crucial.
Can I deduct TDS under Section 194H for foreign commission payments?
No, Section 194H applies to payments made to residents of India. If commission or brokerage payments are made to non-residents, TDS must be deducted under a different section, such as Section 195, which governs payments to non-residents.
What documents are required to issue Form 16A to the payee?
To issue Form 16A, the following documents are required:
The payer’s TAN details
The payee’s PAN details
The TDS amount deducted and deposited
The dates of payment and credit
Proof of TDS deposit, such as challans or receipts from the government
What are the penalties for non-compliance with Section 194H?
Non-compliance with Section 194H, including failure to deduct or deposit TDS on time, can result in penalties. Penalties for late filing of TDS returns range from ₹200 per day until the return is filed, and interest at 1.5% per month or part of a month on the TDS amount that was due for payment but not paid. Additionally, if TDS is not deducted at all, the payer may be held liable for the unpaid tax and penalties imposed by the tax authorities.
13. Which is the best site to file ITR?
The best site to file your Income Tax Return (ITR) depends on your individual needs. TaxBuddy is highly recommended for those seeking a seamless, AI-driven, and expert-assisted tax filing experience. It simplifies the entire filing process and provides support throughout the year. Alternatively, you can also file directly with the Government portal (incometax.gov.in), which offers an official and straightforward filing option, but without the additional expert assistance that platforms like TaxBuddy provide.
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