TDS threshold limit under 194H in FY 2025-26
- PRITI SIRDESHMUKH
- Apr 30
- 6 min read
Updated: May 12
TDS under Section 194H plays an important role in ensuring taxes are deducted at the source for commission and brokerage payments. For FY 2025-26, there's a significant update, the TDS threshold has been raised to ₹20,000, up from ₹15,000 in the previous year. This change makes it easier for businesses and individuals to handle smaller transactions without the added complexity of TDS deductions. Let us break down what this means for those involved in commission-based payments, and how the change will affect tax filing and compliance.
Table of Contents
What is the TDS Threshold Limit under 194H for FY 2025-26?
The TDS threshold limit for Section 194H in FY 2025-26 has been raised to ₹20,000, up from ₹15,000 in the previous year (FY 2024-25). This means that commission or brokerage payments exceeding ₹20,000 in aggregate in a financial year will be subject to a 2% TDS deduction. The increase in the threshold will allow smaller commission payments to be exempt from TDS, reducing the compliance burden for businesses and individuals. This adjustment reflects the government's effort to simplify tax compliance for smaller transactions and make the process less cumbersome for taxpayers.
What is Section 194H?
Section 194H of the Income Tax Act, 1961, addresses the deduction of Tax Deducted at Source (TDS) on commission or brokerage payments. This section is designed to ensure that businesses and individuals involved in commission-based transactions with other parties follow the prescribed tax deduction norms. Under this section, any payment made towards commission or brokerage is subject to a TDS deduction at a specified rate. The key idea behind Section 194H is to ensure that tax is deducted at the time of payment, making the process of tax collection more streamlined and reducing the possibility of evasion. This provision applies to both individuals and businesses, and the rate of TDS, along with the threshold limit for deduction, is subject to change each financial year as per government announcements.
Implications of the Threshold Increase for FY 2025-26
Reduced Compliance Burden: With the increase in the threshold, smaller commission payments are now exempt from TDS, easing the administrative burden for both payers and payees.
Simplified Tax Filing: The revision to the threshold will simplify tax filing for both individuals and businesses, making it easier for them to comply with tax laws without being concerned about smaller transactions.
Who is Affected by Section 194H?
Section 194H applies to individuals, Hindu Undivided Families (HUFs), companies, and other entities that make commission or brokerage payments. However, TDS deduction becomes mandatory for payers with a business turnover exceeding ₹1 crore in the previous financial year. These payers are required to deduct TDS at the rate of 2% once the commission or brokerage payments exceed the threshold of ₹20,000.
How TDS Under Section 194H Works
TDS is deducted at the rate of 2% on commission or brokerage payments exceeding the threshold of ₹20,000 in a financial year. The payer is responsible for ensuring that TDS is deducted at the time of credit or payment, whichever is earlier. The deducted amount must then be deposited with the government and reported in the TDS returns. This ensures that the government collects tax at the point of transaction, making the process more efficient.
Is TDS on Commission Allowed Under the New Tax Regime?
TDS on commission continues to be applicable under both the old and new tax regimes. The tax rate remains unchanged at 2%, and taxpayers need to ensure that TDS is deducted once the threshold of ₹20,000 is crossed. However, there may be different exemptions or benefits under the new tax regime that could affect the overall tax liability, but the TDS process remains consistent across both regimes.
What Happens if the Threshold is Exceeded?
If the total commission or brokerage payments exceed ₹20,000 in a financial year, TDS will be deducted on the entire commission amount, not just the amount exceeding the threshold. For example, if a commission payment of ₹25,000 is made, TDS will be deducted on the full ₹25,000, and not just the ₹5,000 that exceeds the threshold.
TDS Deduction Process: Key Points
Timing of Deduction: TDS must be deducted either at the time of crediting the amount to the payee’s account or at the time of payment, whichever is earlier.
Deposit with Government: Once TDS is deducted, the amount must be deposited with the government within the prescribed time frame.
Reporting in Returns: The deducted TDS must be reported in the TDS returns filed by the payer.
Summary Table for Section 194H Threshold Limits
Financial Year | Threshold Limit for TDS Deduction (₹) | TDS Rate (%) |
FY 2024-25 | 15,000 | 2% |
FY 2025-26 | 20,000 | 2% |
Additional Changes in TDS Threshold for FY 2025-26
In addition to Section 194H, other TDS sections, such as 194A (interest), 194I (rent), and 194J (professional fees), have also undergone revisions to simplify compliance. These changes are aimed at reducing the burden for smaller transactions and enhancing tax collection efficiency.
Conclusion
The revision in the TDS threshold limit under Section 194H for FY 2025-26, raising the limit to ₹20,000, marks a significant step toward easing tax compliance. Smaller commission payments will now be exempt from TDS, benefiting businesses and individuals by reducing their administrative load. This change is part of the government's broader efforts to simplify tax processes and encourage ease of doing business.
Frequently Asked Question (FAQs)
What is Section 194H?
Section 194H of the Income Tax Act deals with the deduction of Tax Deducted at Source (TDS) on commission or brokerage payments. It applies to payments made by individuals or businesses to others in return for commission or brokerage. The TDS rate is set at 2%, and TDS is deducted when the payments exceed the prescribed threshold.
What is the TDS rate under Section 194H?
The TDS rate under Section 194H is 2% on commission or brokerage payments that exceed the threshold limit in a financial year. This rate remains unchanged for FY 2025-26.
What is the TDS threshold limit for FY 2025-26?
For FY 2025-26, the TDS threshold under Section 194H has been increased to ₹20,000. This means that commission or brokerage payments exceeding ₹20,000 in aggregate during the year will be subject to TDS deduction.
How does the threshold limit for FY 2025-26 compare with the previous year?
The threshold limit for FY 2025-26 has been raised from ₹15,000 in FY 2024-25 to ₹20,000. This means smaller payments will be exempt from TDS, making tax filing easier for smaller transactions.
Who needs to deduct TDS under Section 194H?
TDS under Section 194H must be deducted by individuals, Hindu Undivided Families (HUFs), companies, and other entities that make commission or brokerage payments. However, the payer must have a turnover exceeding ₹1 crore in the preceding financial year for the TDS deduction to apply.
When does TDS under Section 194H need to be deducted?
TDS under Section 194H must be deducted either at the time the payment is credited to the payee's account or at the time the payment is made, whichever occurs first.
What happens if the commission exceeds ₹20,000 in a financial year?
If the total commission or brokerage payments to a single payee exceed ₹20,000 in a financial year, TDS will be deducted on the entire amount, not just the amount exceeding the threshold.
Is the TDS rate the same under both the old and new tax regimes?
Yes, the TDS rate under Section 194H remains the same at 2%, irrespective of whether the taxpayer opts for the old or new tax regime.
Is TDS deducted on commission payments to non-residents?
Yes, TDS under Section 194H also applies to commission or brokerage payments made to non-residents, subject to the relevant provisions of the Income Tax Act and any applicable Double Taxation Avoidance Agreement (DTAA).
Can I claim the TDS deducted under Section 194H as a credit?
Yes, the TDS deducted can be claimed as a credit when filing your income tax return. The amount deducted will be reflected in Form 26AS, which can be used to offset your final tax liability.
What if I fail to deduct TDS as required under Section 194H?
If TDS is not deducted as required, the payer may be liable for interest and penalties. It is important to ensure timely deduction and deposit of TDS to avoid these penalties.
How do I file TDS returns under Section 194H?
Once TDS is deducted, the payer must file quarterly TDS returns in the prescribed format (Form 24Q). The returns should reflect the amount of TDS deducted and deposited with the government.
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