How to Handle Income Tax Notices for Underreported Commission Income Under Section 194H

Income tax notices for underreporting commission income often arise from mismatches between declared income and the data available with the Income Tax Department, most commonly sourced from Form 26AS or TDS returns filed by payers. Under Section 194H, any commission or brokerage received above a specified threshold attracts TDS, and discrepancies in its disclosure can trigger scrutiny. Addressing such notices requires prompt action, careful reconciliation, and correct reporting. Platforms like TaxBuddy offer digital tools and expert assistance to help individuals respond accurately, avoiding penalties and ensuring compliance.

Responding to an income tax notice for underreported commission income under Section 194H involves reviewing the mismatch, collecting documents such as Form 26AS and TDS certificates, identifying the cause of the discrepancy, and either revising the return or submitting a detailed online response with supporting proof. Failure to address the notice correctly could lead to penalties or reassessment. Timely compliance backed by proper documentation is critical to resolve the issue.

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Table of Contents

• What Triggers an Income Tax Notice for Commission Underreporting?

• Understanding Section 194H – TDS on Commission and Brokerage

• How to Handle Income Tax Notices for Underreported Commission Income

• Showing Commission Income Under Section 194H in ITR

• Handling Complex Cases and Avoiding Future Notices

• Conclusion

• Frequently Asked Questions

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What Triggers an Income Tax Notice for Commission Underreporting?

Notices are typically generated when the income reported in your ITR does not align with details in Form 26AS, AIS, or TDS statements filed by the payer. If you've earned commission income but either forgot to include it in your return or declared a lower amount, this discrepancy will raise a red flag.

Common triggers include:

• Omission of commission income despite TDS deduction by the payer

• Partial reporting of commission received

• Mismatch in the financial year of accrual vs. reporting

• Wrong ITR form used (e.g., using ITR-1 when ITR-3 is required)

• Non-reporting of TDS credits already visible in Form 26AS

Such discrepancies are picked up through automated data matching systems, often leading to notices under Section 139(9), 143(1), or even reassessment proceedings.

Understanding Section 194H – TDS on Commission and Brokerage

Section 194H of the Income Tax Act, 1961 governs TDS on payments made as commission or brokerage to residents.

TDS Rates and Thresholds (Post-Budget 2024 Changes)

• TDS is applicable at 2% on payments exceeding the threshold.

• From April 1, 2025, the threshold limit has been raised from ₹15,000 to ₹20,000 per financial year.

• In cases where the recipient fails to furnish a valid PAN, the TDS rate shoots up to 20%.

Applicability: Who Must Deduct TDS Under Section 194H?

• Applicable to any individual, company, firm, or organization (except those not liable for audit under Section 44AB in the previous year).

• The payer must deduct TDS before making payment or crediting the amount, whichever is earlier.

• TDS must be deposited with the government and reflected in Form 26AS of the recipient.

Understanding these rules helps in aligning your income reporting with the deductions reported by payers, avoiding misreporting.

How to Handle Income Tax Notices for Underreported Commission Income

When a notice arrives, here’s a step-by-step guide to handle it correctly:

Step 1: Decode the Reason and Timeline in the Notice

Identify the assessment year, type of notice (e.g., 143(1), 139(9)), and the discrepancy mentioned.

Step 2: Match Your Records with Form 26AS and TDS Certificates

Reconcile your ITR data with:

• Form 26AS

• AIS (Annual Information Statement)

• TDS Certificates (Form 16A)

• Bank statements and commission agreements

Step 3: Identify Discrepancies and Collect Supporting Evidence

Common issues include:

• Income reported under the wrong head

• Omitted receipts

• Timing differences between accrual and receipt

Step 4: Revise Return or File a Response, If Required

If eligible, file a revised return correcting the commission income. If not, prepare a written response clearly explaining the discrepancy and attach relevant documents.

Step 5: Submit the Reply via the Income Tax Portal

• Log in at www.incometax.gov.in

• Go to e-Proceedings or Compliance Portal

• Upload your explanation and documents within the deadline

Step 6: Pay Additional Tax, Interest, or Penalty Promptly

If the notice reveals tax underpayment, clear dues immediately to avoid further complications.

Showing Commission Income Under Section 194H in ITR

Accurate reporting of commission income is vital to prevent notices and ensure correct tax liability.

ITR-1 vs ITR-3: Choosing the Right Form Based on Income Type

• Use ITR-3 if commission income is substantial or if you have business/profession income.

• Use ITR-1 only if commission income is minor and reported under “Income from Other Sources.”

Reporting Format and Expense Deductions

• Report gross commission under the relevant head

• Deduct allowable expenses such as travel, phone bills, internet charges, and agent fees if using ITR-3

• Maintain invoices, bank proofs, and ledgers for expense claims

Handling Complex Cases and Avoiding Future Notices

When to Seek Professional Help

While many income tax notices can be resolved independently, certain scenarios demand expert intervention to prevent deeper scrutiny, reassessment, or financial penalties. Recognizing when to involve a tax professional is critical.

1. If discrepancies are large or span multiple years Notices involving significant amounts or recurring mismatches across assessment years often indicate systemic issues in income reporting. Whether it's repeated underreporting of commission income or a pattern of missed TDS credits, these cases may draw closer inspection from the tax department. A professional can conduct a full-year reconciliation, amend filings, and build a defense if required.

2. If legal interpretation is required (e.g., accrual basis vs. receipt basis) Certain income situations—like commissions that are due but not received—require a deeper understanding of tax law. Misinterpretation of accrual-based income recognition could lead to wrongful omissions or duplications. Professionals help determine the correct reporting method and frame explanations backed by relevant legal provisions, improving the chances of favorable resolution.

3. If revised filing deadlines have passed In cases where the notice arrives after the deadline to revise the original return, options become limited. Submitting a written response instead of a revised return becomes necessary. Here, the wording of the explanation, supporting documents, and legal positioning become vital—something that tax professionals are equipped to handle precisely.

How TaxBuddy Simplifies Tax Notice Management

TaxBuddy offers a streamlined approach to dealing with income tax notices, particularly for commission-related issues under Section 194H. It combines automated checks with real human expertise to guide users through every step:

1. Automated TDS Reconciliation Instantly matches your Form 26AS, AIS, and ITR to identify mismatches before the tax department does.

2. Notice Categorization and Analysis Detects the type of notice, the assessment year involved, and highlights the exact discrepancy.

3. Expert Drafting and Submission Tax professionals draft a clear, well-supported response tailored to your case—complete with legal references and attached documents.

4. In-App Document Upload & Alerts The TaxBuddy mobile app keeps everything organized. You’ll get alerts on notice deadlines, document submission timelines, and progress updates without chasing status manually.

Whether you're a salaried individual with occasional brokerage earnings or a consultant managing high-value commission flows, TaxBuddy ensures that your compliance remains on track—backed by reliable professionals who know the tax system inside out.

How TaxBuddy Simplifies Tax Notice Management

Auto-Import of Form 26AS and AIS Data

TaxBuddy seamlessly connects with the Income Tax Department’s database to auto-fetch your Form 26AS and AIS (Annual Information Statement). These documents reflect all TDS deductions, high-value transactions, and income reported by third parties like banks, employers, and business clients. By importing this data automatically, TaxBuddy ensures your return aligns with what the department already knows—reducing the chances of omissions or mismatches that could trigger notices under Section 194H.

Early Detection of TDS Mismatches

Before you even file your return, TaxBuddy runs a smart validation engine that scans for TDS inconsistencies. It compares the commission income and TDS claimed in your draft ITR against the official data in Form 26AS. If there’s a mismatch—say, commission income reported in 26AS that you missed or claimed without matching TDS—TaxBuddy alerts you instantly. This early detection allows you to correct errors proactively, avoiding future scrutiny or penalty notices.

Expert-Assisted Notice Response & Representation

When you receive a notice, TaxBuddy doesn’t just leave you with generic advice. Its expert-assisted plans provide complete handholding:

• A qualified tax expert reviews the notice and your ITR history

• Prepares a professional response tailored to the issue (e.g., underreporting, incorrect form usage, omitted commission)

• Helps you upload documents, such as TDS certificates, agreements, or reconciliation sheets

• Represents you before tax authorities if further clarification is required

This comprehensive support ensures that even complex cases involving Section 194H are handled with accuracy, minimizing stress and the risk of escalation.

Conclusion

Responding to tax notices for underreported commission income under Section 194H demands swift reconciliation, accurate documentation, and correct reporting. Choosing the right ITR form, maintaining clean financial records, and staying updated with TDS thresholds are crucial steps. For individuals managing commission earnings, digital tools like TaxBuddy offer seamless integration with government portals and expert assistance to ensure compliance. For a simplified, secure, and hassle-free experience, download the TaxBuddy mobile app and stay ahead of your tax obligations.

FAQs

Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?

TaxBuddy offers flexibility for all types of taxpayers. You can either opt for self-filing with intuitive digital guidance or choose expert-assisted plans for complete hand-holding, from document review to final submission. This dual approach ensures support whether you're confident filing on your own or prefer professional oversight.

Q2. Which is the best site to file ITR?

While the official Income Tax Department portal serves as the default option, many users find platforms like TaxBuddy more efficient. With features like pre-filled data import, real-time validation, and expert assistance, TaxBuddy significantly simplifies the process, especially for those dealing with income from multiple sources like salary, business, or commission.

Q3. Where to file an income tax return?

Income tax returns can be filed either through the official government portal at www.incometax.gov.in or via authorized platforms like TaxBuddy. These platforms enhance the filing experience with user-friendly dashboards, automated checks, and step-by-step support tailored to your income profile.

Q4. What is the current TDS rate under Section 194H?

As per the latest updates, the TDS rate under Section 194H is 2% on commission or brokerage payments made to residents. If the recipient does not furnish a valid PAN, the rate escalates to 20%. These rates apply from October 1, 2024, and any non-compliance can trigger mismatch notices.

Q5. What is the threshold limit for TDS deduction under Section 194H?

Starting April 1, 2025, the threshold for deducting TDS under Section 194H has been increased to ₹20,000 in a financial year. This means TDS will only be applicable if the aggregate commission or brokerage payment exceeds ₹20,000 to a single recipient during the year.

Q6. Which ITR should I file if I have both salary and commission income?

If commission forms a major portion of your income or is earned regularly, you should file ITR-3, which accommodates income from business or profession. If it's an occasional or small part of your income, and the total income fits within the eligibility, ITR-1 may be acceptable. However, accuracy is key—incorrect form selection can lead to notices.

Q7. Can I deduct expenses from my commission income?

Yes. Expenses directly related to generating commission income, such as phone bills, internet charges, travel expenses, and client meeting costs, are deductible. These deductions can be claimed while filing ITR-3, provided they're supported with proper bills and payment proof.

Q8. What if my commission income was not credited to my bank account?

Even if the commission is not credited to your bank account, it must be reported if it's due or accrued. As per the accrual system of accounting, income is taxable in the year it becomes due—not necessarily when received. TDS is often deducted even before payment is made.

Q9. What if the payer didn’t deduct TDS on commission income?

TDS deduction is the payer’s responsibility, but you’re still liable to report the income in your ITR. In the absence of TDS, you may need to pay the full tax yourself via self-assessment. Be prepared to justify the omission in case of scrutiny, especially if visible in AIS or Form 26AS.

Q10. How do I avoid such tax notices in the future?

Reconcile your commission earnings with Form 26AS and the AIS before filing your return. Double-check that all income, including that not yet received but due—is correctly disclosed. Using tools that auto-import TDS and income data, like those provided by TaxBuddy, can significantly reduce mismatch risks.

Q11. Can I respond to income tax notices myself?

Yes, the Income Tax e-filing portal allows online responses to notices. However, if the notice involves large sums, past-year revisions, or complex justifications, professional help is recommended. TaxBuddy offers expert support for drafting replies, uploading documents, and interacting with the department on your behalf.

Q12. How can TaxBuddy help with tax notices?

TaxBuddy simplifies the entire notice management process. From interpreting the notice and identifying the cause to drafting responses and uploading supporting documents, its team handles it all. The mobile app also provides timely alerts and access to tax professionals, ensuring fast, accurate, and stress-free resolution.