Section 194H: TDS on Commission or Brokerage
- Asharam Swain
- Nov 18, 2025
- 9 min read
Section 194H of the Income Tax Act, 1961 governs the deduction of tax at source on commission or brokerage payments made to residents. It ensures that income earned through intermediary services is reported accurately and taxed at the source itself. From 1 April 2025, the threshold limit has been raised to ₹20,000 and the TDS rate reduced to 2 percent, simplifying compliance for businesses and individual payers. TaxBuddy helps taxpayers understand such provisions and stay compliant through automated reminders and expert filing support.
Table of Contents
Understanding Section 194H: Scope and Applicability
Section 194H of the Income Tax Act, 1961 governs the deduction of Tax Deducted at Source (TDS) on payments made as commission or brokerage to resident individuals or entities. The provision ensures that income earned through intermediary services is reported and taxed appropriately. It applies to all entities, including partnership firms, companies, and individuals engaged in business or professional activities. However, individuals and Hindu Undivided Families (HUFs) not subject to a tax audit under Section 44AB are exempt from deducting TDS under this section. The payer must deduct TDS at the time of credit or payment, whichever is earlier, once the prescribed threshold is crossed.
Meaning of Commission or Brokerage under Section 194H
Commission or brokerage refers to any payment received or receivable by a person for acting on behalf of another in facilitating the sale or purchase of goods, assets (excluding securities), or valuable articles. It also includes payments for services related to securing orders, handling customers, or executing transactions for third parties. However, discounts offered directly on sales are not considered commission. The definition is intentionally broad to include most intermediary-based earnings in business and professional dealings.
TDS Threshold Limit and Rate Applicable under Section 194H
From 1 April 2025, the threshold limit for TDS deduction under Section 194H has been increased to ₹20,000 in a financial year, up from the previous ₹15,000 limit. This means TDS is applicable only when the total commission or brokerage paid to a resident exceeds ₹20,000 in a year. The TDS rate is currently 2%, reduced from the earlier 5% as per recent amendments. However, if the payee fails to furnish a valid Permanent Account Number (PAN), the TDS rate increases sharply to 20% under Section 206AA. These changes simplify compliance and offer relief to smaller commission earners.
When to Deduct TDS on Commission or Brokerage Payments
TDS under Section 194H must be deducted at the time of crediting the commission or brokerage to the recipient’s account or at the time of actual payment, whichever occurs earlier. This ensures that the liability to deduct tax arises even if the payment is not made immediately. The deducted TDS amount must then be deposited with the government within the prescribed due dates. Timely deduction and deposit prevent penalties and interest charges under Sections 201 and 234E.
Exemptions under Section 194H
Certain payments are exempt from TDS under Section 194H. Commission on insurance business is excluded, as it falls under Section 194D. Payments made to banks, including cooperative banks, are also exempted to reduce compliance burden on the banking sector. Moreover, individuals and HUFs not liable to tax audit are not required to deduct TDS unless their total turnover exceeds ₹1 crore (for business) or ₹50 lakhs (for profession) in the preceding financial year. These exemptions help balance compliance obligations between large and small entities.
Compliance Responsibilities for Deductors
Entities responsible for deducting TDS under Section 194H must obtain a valid Tax Deduction and Collection Account Number (TAN). The deducted tax should be deposited with the government within the prescribed timeline—typically by the 7th of the following month. Deductors are also required to file quarterly TDS returns using Form 26Q, ensuring that details such as the deductee’s PAN, amount paid, and tax deducted are accurately reported. Regular reconciliation between books and Form 26AS helps avoid mismatches and future notices.
Impact of PAN Non-Availability on TDS Deduction
When the recipient of commission or brokerage fails to provide a valid PAN, the payer must deduct TDS at a higher rate of 20% as per Section 206AA. This is a mandatory compliance measure to ensure traceability of income. Additionally, if PAN details are incorrect or not updated, the TDS credit may not reflect properly in the payee’s Form 26AS or Annual Information Statement (AIS). Therefore, maintaining accurate PAN records and verifying them through the Income Tax Department’s portal is crucial to avoid unnecessary deductions.
Aggregation of Commission Payments for TDS Calculation
TDS applicability under Section 194H is determined by aggregating all commission or brokerage payments made to a single payee during the financial year. Even if individual payments are below ₹20,000, once the cumulative total exceeds this limit, TDS must be deducted on the entire amount. This rule prevents circumvention of TDS liability through fragmented payments. Deductors should maintain a proper record of transactions to ensure that thresholds are monitored accurately and compliance is maintained throughout the year.
Is Commission or Brokerage TDS Applicable to Banks and NBFCs?
Payments made to banks, including cooperative banks, are specifically exempted from TDS under Section 194H. However, payments made to Non-Banking Financial Companies (NBFCs) may not enjoy this exemption unless explicitly clarified by the Central Board of Direct Taxes (CBDT). The intent is to reduce the compliance burden on core banking activities while ensuring that financial intermediaries such as agents, consultants, or brokers in NBFC networks remain under the TDS purview. Entities should verify the recipient’s category before deciding on TDS applicability.
How TaxBuddy Simplifies Section 194H Compliance
TDS compliance can be challenging for businesses managing multiple payments throughout the year. TaxBuddy simplifies this process through automated TDS calculation, reminders for due dates, and expert-assisted filing. The platform ensures accurate deduction and timely deposit of TDS, reducing the risk of penalties or notices. With features for PAN validation, Form 26Q filing, and reconciliation, TaxBuddy’s intelligent system helps maintain full compliance with Section 194H requirements. Businesses can focus on their operations while TaxBuddy takes care of tax-related complexities.
Recent Updates from Budget 2025 Affecting Section 194H
The Union Budget 2025 introduced key updates to make TDS compliance more practical and transparent. The threshold limit for commission and brokerage payments was raised from ₹15,000 to ₹20,000 per financial year, offering relief to small agents and brokers. Additionally, the TDS rate was revised to 2% from 5%, making the deduction less burdensome. The CBDT also issued clarifications regarding digital commission payments and reporting requirements in Form 26Q. These refinements align with the government’s broader goal of simplifying tax compliance for businesses.
Conclusion
Section 194H plays a critical role in ensuring that commission and brokerage incomes are appropriately taxed at the source. By understanding its scope, thresholds, and exemptions, both payers and recipients can maintain compliance and avoid penalties. Regular TDS filing and reconciliation are essential to ensure accuracy and transparency. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides both self-filing and expert-assisted options for income tax return filing. The self-filing plan is designed for salaried individuals or those with straightforward financial situations. It allows users to upload Form 16 and other documents, with TaxBuddy’s AI automatically pre-filling details to minimize errors. The expert-assisted plan is ideal for those with complex income sources such as commission, business income, or capital gains, where professional review ensures accuracy and full compliance with tax laws.
Q2. Which is the best site to file ITR? While the official government portal (incometax.gov.in) is the primary site for filing returns, many taxpayers prefer platforms that make the process easier. TaxBuddy is among the most trusted private platforms in India for online ITR filing. It integrates automation with expert support, offers personalized guidance, and provides both desktop and mobile app access. The platform also ensures accurate tax computation, error-free return filing, and post-filing support in case of notices.
Q3. Where to file an income tax return? An income tax return can be filed either through the Income Tax Department’s e-filing website or through trusted third-party platforms like TaxBuddy. Filing through TaxBuddy offers additional advantages such as automatic data import from Form 16, PAN, and AIS, along with step-by-step guidance. Users can also file their returns directly via the TaxBuddy mobile app, ensuring convenience and speed while maintaining full compliance with government regulations.
Q4. What is the current TDS rate under Section 194H? As per the latest updates effective from 1 April 2025, the TDS rate on commission or brokerage payments under Section 194H is 2% when the total amount paid to a resident exceeds ₹20,000 in a financial year. If the recipient does not provide a valid PAN, TDS must be deducted at a higher rate of 20% as per Section 206AA. This reduced rate of 2% was introduced to ease the tax burden on smaller intermediaries and enhance compliance efficiency.
Q5. Who is required to deduct TDS on commission or brokerage payments? Any person or entity paying commission or brokerage to a resident, except an individual or HUF not liable for a tax audit, must deduct TDS under Section 194H. This includes companies, partnership firms, and professionals engaged in businesses where commission-based transactions occur. Individuals and HUFs are also required to deduct TDS if their turnover or receipts exceed ₹1 crore in business or ₹50 lakh in profession during the preceding financial year.
Q6. When should TDS be deducted under Section 194H – at payment or credit? TDS must be deducted at the earlier of two events—either when the commission or brokerage is credited to the recipient’s account or when actual payment is made, whichever happens first. This rule prevents deferment of TDS liability by merely delaying payment. Once deducted, the TDS amount must be deposited with the government by the 7th of the following month to avoid interest or penalties.
Q7. Are insurance commissions covered under Section 194H? No, insurance commissions are not governed by Section 194H. They fall under Section 194D, which deals specifically with TDS on income earned by insurance agents or brokers. Section 194H applies to other forms of commission or brokerage such as trade commissions, brokerage on goods, and service-related intermediary payments. Understanding this distinction helps businesses apply the correct TDS section during deduction.
Q8. What happens if the deductor fails to deduct TDS on commission payments? If a deductor fails to deduct or deposit TDS on commission or brokerage payments, they become liable to pay the entire tax amount along with interest under Section 201(1A). The interest is calculated at 1% per month from the date on which TDS should have been deducted until the date of actual deduction. Additionally, penalties and disallowances under Section 40(a)(ia) may apply, making the expenditure non-deductible from business income.
Q9. Can a recipient claim credit for TDS deducted under Section 194H? Yes, the recipient of commission or brokerage can claim credit for TDS deducted under Section 194H while filing their income tax return. The TDS amount is reflected in the Form 26AS and Annual Information Statement (AIS) of the recipient. Once verified, it can be adjusted against their total tax liability. If the total TDS exceeds the final tax payable, the recipient is eligible for a refund upon successful return processing.
Q10. Is TDS under Section 194H applicable to GST-inclusive commission amounts? TDS under Section 194H is applicable only on the commission amount excluding GST, as per CBDT guidelines. If the GST component is separately mentioned in the invoice, TDS should be calculated only on the base commission value. Deducting TDS on the total including GST may result in excess deduction, leading to reconciliation issues for both the payer and the payee during return filing.
Q11. How does TaxBuddy assist with TDS return filing and error-free compliance? TaxBuddy simplifies TDS management by offering an automated system that calculates TDS, reminds users of deadlines, and assists with filing Form 26Q. It cross-verifies PAN details, validates challans, and ensures all transactions are reported accurately. The expert-assisted plans provide human review to catch inconsistencies, while the mobile app allows users to track filing progress in real time. This holistic support helps prevent mismatches, late fees, and notices from the tax department.
Q12. What documents are required for verifying TDS deducted under Section 194H? To verify TDS deductions under Section 194H, the recipient should keep essential documents such as Form 16A (TDS certificate), commission or brokerage payment invoices, and bank statements reflecting credited amounts. Cross-verification with Form 26AS and AIS ensures the TDS has been correctly deposited by the deductor. In case of discrepancies, the recipient can raise a correction request through the TRACES portal or contact the payer for rectification. Maintaining these records helps in seamless reconciliation during ITR filing.
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