Section 194H TDS Rate in 2025: Detailed Explanation

Section 194H of the Income Tax Act, 1961, requires TDS deductions on commission or brokerage payments made by individuals or businesses. With the updates introduced in Budget 2024, the TDS rate under this section has been reduced, and the threshold limit for deduction has been revised. These changes aim to simplify compliance and facilitate smoother business operations. Let us explore the revised TDS rates, the new threshold for deduction, and how these adjustments impact commission-based transactions for businesses and individuals.

---

Table of Contents

• Section 194H TDS Rate in 2025

• Key Changes in Section 194H for FY 2024-25 and FY 2025-26

• Applicability of Section 194H TDS

• Who Should Deduct TDS Under Section 194H?

• Compliance Requirements for TDS Deduction

• Practical Implications for Commission Payments

• Summary Table of Section 194H TDS Rate and Threshold

• Conclusion

• FAQs

---

Section 194H TDS Rate in 2025

As per the new rules, the TDS rate under Section 194H has undergone significant changes. Starting October 1, 2024, the TDS rate will be reduced from 5% to 2% for commission and brokerage payments. Additionally, from April 1, 2025, the threshold limit for TDS deduction has been increased from ₹15,000 to ₹20,000. These changes are part of the government's efforts to streamline compliance and reduce the tax burden on individuals and businesses.

Key Changes in Section 194H for FY 2024-25 and FY 2025-26

The Budget 2024 introduced crucial changes to Section 194H of the Income Tax Act that affect both businesses and individuals making commission or brokerage payments.

1. TDS Rate Reduction:

   Starting from October 1, 2024, the TDS rate on commission or brokerage payments under Section 194H will be reduced from 5% to 2%. This reduction is part of the government's initiative to ease compliance and reduce the administrative burden for businesses, especially smaller ones that deal with commission-based payments. The lower rate aims to ease the tax burden on intermediaries such as agents and brokers.

   
   

2. Threshold Limit Increase:

   Another significant change is the increase in the threshold limit for TDS deduction. From April 1, 2025, the threshold limit for deducting TDS under Section 194H will rise from ₹15,000 to ₹20,000 in a financial year. This means that TDS will only be deducted if the total commission or brokerage payment made during the financial year exceeds ₹20,000. This higher threshold will reduce the compliance workload for businesses making smaller payments.

These changes aim to benefit businesses by making compliance simpler and less costly, while also encouraging smooth and timely transactions, especially in sectors heavily reliant on commission-based compensation.

Applicability of Section 194H TDS

Section 194H applies to commission or brokerage payments made by any person (individual, company, firm) to another person. It covers payments related to business or professional services, including those made by agents, brokers, or intermediaries. The payments subject to TDS include:

1. Commission Payments: These are payments made to individuals or entities for generating business or sales, such as those paid to agents for selling products or services.

   
   

2. Brokerage Payments: These include payments made to brokers for facilitating transactions, such as real estate transactions, stock market trades, or insurance policies.

   
   

The key point here is that TDS applies when the payments exceed the prescribed threshold for the year, making it essential for businesses to monitor and track these payments to ensure compliance with the TDS requirements.

Who Should Deduct TDS Under Section 194H?

Any individual or entity making commission or brokerage payments must comply with the TDS deduction provisions under Section 194H. This includes:

1. Individuals: An individual making commission-based payments, such as an agent or broker working for an organization, must deduct TDS if their payments exceed the threshold.

   
   

2. Companies and Firms: Businesses, including companies and partnerships, paying commission or brokerage for services like sales generation, financial advice, or other professional services, are required to deduct TDS under Section 194H.

   
   

The deduction applies irrespective of the nature of the payer’s business, as long as the payment made is for services related to commission or brokerage. However, the TDS is only applicable if the total commission or brokerage exceeds the prescribed threshold limit.

Compliance Requirements for TDS Deduction

For businesses or individuals who need to deduct TDS under Section 194H, certain compliance steps must be followed:

1. TDS Deduction: When the payment of commission or brokerage exceeds the threshold limit, the payer must deduct TDS at the prescribed rate (currently 2% for FY 2025-26). This amount is deducted before making the payment to the recipient.

   
   

2. Deposit of TDS: After deducting TDS, the deductor is required to deposit the deducted amount with the government within the prescribed timeline. The payment can be made through online methods or at designated banks.

   
   

3. TDS Certificate: The deductor must issue a TDS certificate (Form 16A) to the deductee. This certificate contains details of the TDS deducted and deposited and is essential for the recipient to claim credit for the TDS while filing their income tax return.

   
   

4. Timely Filing: The deductor is also responsible for filing quarterly TDS returns (Form 24Q or Form 26Q) with the Income Tax Department. This ensures that the TDS deducted is properly reported and accounted for.

Failure to comply with these requirements can lead to penalties, interest, and a higher TDS rate of 20% if the PAN details of the deductee are not provided.

Practical Implications for Commission Payments

The updated provisions of Section 194H have several practical implications for businesses, particularly those in the financial services, insurance, real estate, and retail sectors.

1. Higher Threshold and Simplified Compliance: With the threshold limit for TDS deduction increasing to ₹20,000 from ₹15,000 in FY 2025-26, businesses that deal with smaller commission-based payments will face fewer compliance requirements. This will significantly reduce the paperwork and the administrative burden of having to track and deduct TDS on smaller payments.

   
   

2. Impact on Bank and Financial Institutions: Financial institutions, such as banks, that pay commission to agents or brokers for account openings or loan sales will benefit from these changes. They will now only need to deduct TDS if the total commission exceeds ₹20,000, making it easier to manage and track payments.

   
   

3. Ease of Documentation: The changes will help businesses ensure that they only deduct TDS when necessary, preventing excess deductions. Clear records must still be maintained, particularly ensuring the deductee’s PAN is available to avoid higher TDS rates.

   
   

Overall, these changes are expected to improve cash flow for businesses and reduce the complexities of tax compliance for commission-based payments.

Summary Table of Section 194H TDS Rate and Threshold

Financial Year	TDS Rate on Commission/Brokerage (Section 194H)	Threshold Limit for TDS Deduction
FY 2024-25	2% (from Oct 1, 2024)	₹15,000
FY 2025-26	2%	₹20,000

Conclusion

The revisions to Section 194H in FY 2025 are designed to simplify compliance and reduce the tax burden on smaller commission payments. Businesses and individuals involved in commission-based transactions should familiarize themselves with the updated thresholds and TDS rates to ensure timely and accurate compliance, thereby avoiding penalties and complications.

FAQ

Q1. What is Section 194H of the Income Tax Act?

Section 194H of the Income Tax Act, 1961, pertains to the deduction of Tax Deducted at Source (TDS) on commission or brokerage payments. According to this provision, any person or entity that makes a commission or brokerage payment to another must deduct TDS at the prescribed rate if the payment exceeds a specified threshold. This section is applicable to payments made for services such as sales commissions, brokerage for insurance, or commission paid to agents.

Q2. How does the TDS rate under Section 194H affect commission payments in 2025?

Starting from October 1, 2024, the TDS rate under Section 194H has been reduced from 5% to 2% for commission or brokerage payments. This reduction is part of the Budget 2024 reforms aimed at reducing the tax burden on businesses making commission-based payments and simplifying compliance. As a result, businesses will now have to deduct less TDS on commission payments, easing cash flow and administrative responsibilities.

Q3. What is the new threshold for TDS under Section 194H for FY 2025-26?

For FY 2025-26, the threshold for TDS deduction under Section 194H has been increased from ₹15,000 to ₹20,000. This means that TDS will only be deducted if the total commission or brokerage payments exceed ₹20,000 in a financial year. This increase in the threshold is expected to reduce the number of smaller payments subject to TDS deduction, further simplifying compliance for businesses.

Q4. Who is required to deduct TDS under Section 194H?

Any person or entity, including individuals, companies, and firms, who makes commission or brokerage payments to another party, is required to deduct TDS under Section 194H. This applies to any payment made for commission or brokerage related to business or professional services, such as payments to agents, brokers, or intermediaries. The obligation to deduct TDS applies only if the total payments exceed the threshold limit for the year.

Q5. What types of payments fall under Section 194H for TDS deduction?

Section 194H applies to commission or brokerage payments, which include:

1. Sales Commission: Payments made to individuals or entities for generating business or sales.

2. Brokerage: Payments made to brokers for facilitating transactions, such as in insurance or real estate.

3. Other Professional Fees: Payments for professional services that include commission-based remuneration or brokerage.

These payments must be related to business or professional activities and fall under the category of commission or brokerage to be subject to TDS under Section 194H.

Q6. When is TDS under Section 194H deducted?

TDS under Section 194H is deducted at the time of payment or credit, whichever is earlier. If a commission or brokerage payment is made in multiple installments, TDS should be deducted at the time of each payment or credit. The deductor must ensure that the TDS is deducted before the payment is made to the recipient, ensuring that the tax is deducted in a timely manner as per the prescribed limits.

Q7. How is the TDS rate for commission payments different in FY 2025-26?

In FY 2025-26, the TDS rate for commission payments under Section 194H has been reduced to 2% from the previous 5%. This reduction is aimed at simplifying compliance for businesses and reducing the financial burden on individuals and entities who make commission-based payments. The lower rate is particularly beneficial for small businesses and intermediaries that deal with regular commission transactions.

Q8. How can businesses comply with Section 194H TDS requirements?

To comply with Section 194H TDS requirements, businesses need to follow these steps:

1. Track Payments: Monitor commission and brokerage payments to ensure they exceed the threshold limit for TDS deduction.

2. Deduct TDS: Deduct TDS at the prescribed rate (2% from FY 2025-26 onwards) before making the payment to the recipient.

3. Deposit TDS: Deposit the deducted TDS with the government within the due dates, typically through online payment systems.

4. Issue TDS Certificate: Provide the recipient with a TDS certificate (Form 16A) showing the details of the TDS deducted and deposited.

5. File Quarterly Returns: File the TDS returns quarterly using Form 24Q or 26Q, as applicable.

Businesses must also maintain accurate records of all commission payments and TDS deductions to ensure transparency and avoid penalties.

Q9. What documents are required for TDS deduction under Section 194H?

The key documents required for TDS deduction under Section 194H are:

1. PAN Card of the Deductee: The deductor must ensure that the recipient's PAN is available to avoid higher TDS deductions at the rate of 20%.

2. TDS Certificate (Form 16A): This certificate is issued by the deductor to the deductee as proof of TDS deduction and deposit.

3. Payment Receipts or Invoices: Records of commission or brokerage payments made to the recipient.

These documents are essential for compliance with TDS requirements and for the deductee to claim the TDS credit during income tax filing.

Q10. Are there any exemptions under Section 194H for commission payments?

Section 194H does not provide any specific exemptions for commission payments. However, there are some scenarios where the TDS provisions might not apply:

1. Payments Below Threshold: If the total commission or brokerage payments do not exceed the prescribed threshold limit, TDS is not required.

2. Specific Transactions Exempt from TDS: Some types of payments, such as those made to certain government bodies or public sector enterprises, might be exempt, but these exemptions are case-specific.

It is important for businesses to review their payments and ensure compliance based on the latest thresholds.

Q11. How can a business avoid penalties for non-compliance with Section 194H?

To avoid penalties for non-compliance with Section 194H, businesses must:

1. Ensure Timely TDS Deduction: Deduct TDS at the correct rate and on time for commission or brokerage payments exceeding the threshold limit.

2. Deposit TDS on Time: Make the TDS deposit to the government within the prescribed deadlines.

3. Issue TDS Certificates: Provide TDS certificates to the deductees as required.

4. File Quarterly TDS Returns: File TDS returns accurately and on time to ensure proper reporting of deductions.

Failure to meet these compliance requirements can result in penalties, interest, and a higher TDS rate of 20% for missing PAN details.

Q12. What are the penalties for not deducting TDS under Section 194H?

The penalties for not deducting TDS under Section 194H can include:

1. Interest: Interest will be levied on the amount of TDS not deducted at the prescribed rates. This interest is calculated from the due date of deduction until the actual date of payment.

2. Penalty for Late Deduction: If TDS is not deducted on time, a penalty of ₹100 per day may be imposed until the TDS is deducted, subject to a maximum amount equal to the TDS amount.

3. Higher TDS Rate (20%): If the recipient's PAN is not available, the TDS will be deducted at a higher rate of 20%, which increases the financial burden on the deductee.