Section 194H TDS on Commission and Its Effect on Tax Filing and Income Reporting

Section 194H of the Income Tax Act governs the deduction of TDS on commission or brokerage paid to residents. This provision ensures tax is collected at the source for intermediary earnings, whether it’s from agents, brokers, or service intermediaries. With recent updates in rates and thresholds, understanding its application is critical for businesses and professionals. Any misstep can lead to notices, penalties, or disallowance of expenses. Whether you are deducting or receiving commission, aligning your books with Section 194H requirements is key to accurate tax filing and seamless reporting.

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Table of Contents

What Is Section 194H of the Income Tax Act?

Applicability and Scope of TDS on Commission

Latest TDS Rates and Thresholds Under Section 194H

Timing and Manner of Deduction

Exemptions and Lower/Nil TDS Deduction

Effect of Section 194H on Income Reporting and Tax Filing

Compliance Checklist for Deductors and Deductees

Common Errors and How to Avoid Them

How TaxBuddy Helps Simplify TDS Compliance

Conclusion

Frequently Asked Questions

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What Is Section 194H of the Income Tax Act?

Section 194H mandates the deduction of TDS on payments made as commission or brokerage to a resident, excluding professional services. The definition covers any remuneration received by an intermediary for facilitating transactions, typically in goods, assets, or services. Notably, this excludes securities and insurance commissions (the latter is governed by Section 194D).

It applies when an individual or entity pays commission over the prescribed threshold to a resident, making it a routine obligation in agency-based and sales-driven business structures.

Applicability and Scope of TDS on Commission

TDS under Section 194H must be deducted by:

• Any entity (other than an individual/HUF) paying commission or brokerage

• Individuals/HUFs only if turnover exceeds ₹1 crore (business) or ₹50 lakh (profession) in the preceding financial year.

Commission or brokerage includes:

• Earnings from facilitating sales or purchases

• Remuneration for rendering intermediary services

• Payments made for influencing business deals, except for professional or legal services

This broad scope ensures that middlemen across sectors—retail, services, logistics—are brought under the TDS net.

Latest TDS Rates and Thresholds Under Section 194H

Period	TDS Rate	Threshold Limit
Up to 30 Sep 2024	5%	₹15,000
From 1 Oct 2024	2%	₹15,000
From 1 Apr 2025	2%	₹20,000

• If the payee fails to provide PAN: TDS is deducted at 20%

• For insurance commission: Section 194D applies instead

• Threshold is cumulative—if multiple payments cross the limit, TDS applies on the entire amount

These revised rates aim to ease compliance while maintaining revenue neutrality for the government.

Timing and Manner of Deduction

TDS under Section 194H must be deducted at the earliest of:

• Crediting the amount to the recipient’s account (even if temporarily parked in a suspense account)

• Actual payment in cash or through any other method

Once deducted:

• The TDS must be deposited with the government by the 7th of the following month (except for March, which has a 30th April deadline)

• Deductors must file quarterly TDS returns in Form 26Q

• TDS certificates (Form 16A) must be issued to recipients within the specified time

Following these steps ensures seamless credit for the deductee and prevents penal interest for the deductor.

Exemptions and Lower/Nil TDS Deduction

TDS under Section 194H is not applicable in two specific cases that offer significant relief to small payees and low-income recipients. The first exemption applies when the total amount of commission or brokerage paid to a single recipient during a financial year does not exceed the prescribed threshold—₹15,000 up to 31 March 2025, and ₹20,000 thereafter. If the total payout remains within this limit, no TDS needs to be deducted.

The second scenario involves a lower or nil deduction of TDS, which can be availed through a formal application process. A recipient expecting lower income or minimal tax liability can apply to the Assessing Officer by submitting Form 13. This form requests the issuance of a certificate under Section 197 that permits TDS to be deducted at a reduced rate—or not deducted at all, depending on the case.

Once the certificate is issued by the tax authorities, it is the responsibility of the deductor to verify its authenticity and ensure it covers the relevant period and amount. Only after this verification should the deductor apply the lower or nil rate while processing the commission payment.

These exemption mechanisms are particularly helpful for small intermediaries and part-time agents, allowing them to manage cash flows more efficiently and avoid unnecessary tax deductions. It also ensures that only the rightful amount of tax is withheld at source, reducing the burden of refund claims during income tax return filing.

Effect of Section 194H on Income Reporting and Tax Filing

For Deductors (Payers):

• Must deduct TDS and deposit it on time

• File Form 26Q quarterly

• Issue Form 16A to the recipient

For Deductees (Recipients):

• Reflect the gross income (before TDS) in their return under business income or other sources

• Claim TDS credit via Form 26AS

• Request refund if TDS exceeds actual liability

Proper deduction and reporting under Section 194H not only ensure compliance but also reduce the chances of scrutiny, notices, and disallowed expenses.

Compliance Checklist for Deductors and Deductees

For Deductors:

• Confirm applicability based on turnover

• Track cumulative commission payments

• Deduct TDS at applicable rates

• Deposit TDS by the 7th of next month (or 30th April for March)

• File Form 26Q quarterly

• Issue Form 16A within the due date

For Deductees:

• Reconcile commission receipts with Form 26AS

• Report gross receipts under the correct income head

• Apply for lower/nil TDS if eligible

• Claim refund or credit as applicable

Adhering to this checklist avoids compliance errors and smooths out the ITR filing process.

Common Errors and How to Avoid Them

• Not deducting TDS on cumulative commission > threshold

• Ignoring turnover limits for individuals/HUFs

• Using incorrect TDS rate when PAN is not furnished

• Missing deposit deadlines

• Not issuing Form 16A to recipients

How to Avoid:

• Automate reminders for TDS deposit and return filing

• Regularly reconcile commission transactions and Form 26AS

• Use compliance platforms to validate rates and deadlines

Avoiding these pitfalls can prevent heavy interest and disallowance of expenses.

How TaxBuddy Helps Simplify TDS Compliance

TaxBuddy offers end-to-end tax filing and TDS compliance support for individuals, businesses, and professionals. From tracking commission payments to validating thresholds and preparing Form 26Q, TaxBuddy ensures everything is compliant and error-free. For recipients, TaxBuddy auto-fetches Form 26AS and provides intelligent tax filing recommendations based on income classification—ensuring the deducted TDS is fully credited or refunded where applicable. Its mobile app simplifies the entire process, whether you're a salaried agent, an independent consultant, or a business paying out commissions.

Conclusion

Section 194H ensures transparency in commission-related payments through timely TDS deduction and income disclosure. Staying updated with recent rate changes and thresholds is essential for both deductors and recipients to remain compliant and avoid tax complications. For anyone looking for assistance in tax filing, it’s smart to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.

FAQ

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

TaxBuddy offers both modes—self-filing for confident users and expert-assisted filing for those who prefer guided help. Users dealing with TDS under Section 194H, especially those earning commission income, can benefit from the platform’s AI-based recommendations and expert-backed checks. This flexibility helps taxpayers of all types handle complex income categories with ease.

Q2. Which is the best site to file ITR?

The official Income Tax Department portal is available to all taxpayers, but platforms like TaxBuddy offer a significantly more intuitive and accurate experience. With features like automatic Form 26AS sync, TDS validation under multiple sections including 194H, and smart prompts for deductions and income categorization, TaxBuddy ensures that even complex returns involving commission or brokerage are filed accurately without missing benefits or triggering notices.

Q3. Where to file an income tax return?

Returns can be filed either on the government portal (incometax.gov.in) or through third-party filing platforms like TaxBuddy. While the government portal is functional, platforms like TaxBuddy add value through real-time error detection, expert support, and AI-driven filing for various income heads, including commission income impacted by TDS under Section 194H.

Q4. What is the TDS rate under Section 194H for FY 2024-25?

The applicable rate is 5% until 30 September 2024. From 1 October 2024, the rate drops to 2% to ease the compliance burden. The threshold remains ₹15,000 during this period. From 1 April 2025, the threshold increases to ₹20,000 while the rate remains 2%. These rates apply when the payee furnishes a valid PAN and the total commission paid during the year crosses the specified threshold.

Q5. What if PAN is not furnished by the commission recipient?

In cases where the recipient of commission income fails to provide a valid PAN, TDS must be deducted at a flat rate of 20% under Section 206AA, regardless of the prevailing rates or thresholds. This punitive rate is aimed at encouraging PAN compliance and deters evasion. Deductors must verify PAN details before applying standard TDS rates under Section 194H.

Q6. How can a recipient apply for lower or nil TDS deduction?

To avoid excess TDS on commission payments, recipients can file Form 13 with the Income Tax Department and obtain a certificate under Section 197. This certificate, once granted, authorizes the deductor to apply a reduced or nil rate of TDS. The deductor must validate the authenticity of the certificate before making such payments. This process helps maintain better cash flow, especially for small agents or consultants.

Q7. Can individuals and HUFs be liable to deduct TDS under Section 194H?

Yes, individuals and HUFs are also required to deduct TDS under Section 194H if their total business turnover exceeds ₹1 crore or if professional receipts exceed ₹50 lakh in the previous financial year. This condition brings high-earning sole proprietors, consultants, and family-run businesses within the ambit of TDS deduction obligations on commission payouts.

Q8. Is TDS applicable on commission for insurance policies under Section 194H?

No. Commission received for insurance policy sales is not governed by Section 194H. It falls under the scope of Section 194D, which has different TDS rates and limits. This distinction ensures that insurance agents are taxed under the appropriate provision and helps avoid incorrect classification during tax filing.

Q9. How should recipients report commission income in their ITR?

The full gross amount of commission (before TDS) must be reported under the correct head—either “Income from Business or Profession” or “Income from Other Sources,” depending on the nature of work. TDS credit, as shown in Form 26AS or AIS, should be claimed to reduce tax liability. Failure to report the gross income or mismatched credits can lead to scrutiny or delay in refund processing.

Q10. What happens if TDS is not deposited or deducted on time?

Non-compliance leads to cascading consequences for the deductor. Interest is charged under Section 201(1A), and penalty under Section 271H may apply. More importantly, the commission payment may be disallowed as an expense under Section 40(a)(ia), increasing the business’s taxable income. Accurate and timely compliance under Section 194H is critical to avoid such consequences.

Q11. Can a recipient claim a refund if excess TDS was deducted under Section 194H?

Yes. If the TDS amount deducted is more than the final tax liability, the recipient can claim the difference as a refund while filing the ITR. The refund is processed after verification by the Income Tax Department. Prompt and correct filing with TDS credit reconciliation from Form 26AS ensures smooth refund issuance, especially for commission agents whose income may fluctuate seasonally.

Q12. How does TaxBuddy help with TDS under Section 194H?

TaxBuddy provides intelligent automation and expert oversight for both deductors and recipients of commission income. It simplifies TDS tracking, automates Form 26Q filing, validates TDS certificates (Form 16A), and ensures proper categorization of income in ITR forms. For recipients, it reconciles income with Form 26AS and flags mismatches. With features tailored for TDS-heavy income sources, the TaxBuddy mobile app ensures a seamless, guided experience that reduces stress and improves filing accuracy.