Section 194H of Income Tax Act: TDS on Commission & Brokerage Explained 2025

Businesses often pay commissions to agents, distributors, brokers, and intermediaries. But many don’t know that these payments come under Section 194H of Income Tax Act, which mandates TDS on commission and brokerage.

In this 2025 guide, you’ll understand the TDS rate, threshold limit, deductions rules, exemptions, examples, and how this section is different from other TDS sections and rates like 194A, 194C, 194Q, 194R, and 194O.

What Is Section 194H? (Meaning & Scope)

Section 194H of Income Tax Act covers TDS on commission or brokerage paid to a resident.
It applies when a business pays commission for:

• Facilitating sales
• Providing intermediary services
• Connecting buyers and sellers
• Non‑professional services

This is different from other sections like:

• 194A TDS section – interest payments
• 194C TDS section – contractor payments
• TDS on rent section 194I/194IB
• 194O TDS section – e‑commerce operators
• 194R TDS section – benefits & perks
• 194Q TDS section – purchase of goods

Section 194H strictly covers only commission and brokerage, not professional services or insurance commission.

Commission & Brokerage Meaning Under Section 194H

Commission or brokerage includes payments:

• For arranging sales
• For acting as an intermediary
• For facilitating purchase/sale of goods
• For helping in transactions of assets or valuable items

It does not include:

• Professional service charges (covered under 194J)
• Insurance commission (not part of commission TDS section 194H)
• Stock market brokerage (separate rules apply)

Applicability of Section 194H: Who Must Deduct TDS?

TDS must be deducted under 194H TDS section if:

• Commission paid exceeds the threshold limit, and
• The payer is:
  • Company
  • Firm
  • LLP
  • Individual/HUF (if turnover in previous year exceeds limits of Section 44AB)

Applicability Threshold for Individuals/HUF

• Business: Turnover above ₹1 crore
• Profession: Receipts above ₹50 lakh

This section is separate from 194IB TDS rate (rent by individuals) and 194A TDS rate (interest on deposits).

Latest TDS Rate & Threshold Limit (2024–2025 Update)

From 1 October 2024, the TDS rate under 194H = 2%
Earlier it was 5%.

If PAN is not provided → TDS = 20%

Updated TDS on Commission Limit

• Until 31 March 2025 → ₹15,000
• From 1 April 2025 → ₹20,000

So, TDS is required only when the total yearly commission exceeds ₹20,000.

When Is TDS Deducted Under Section 194H?

TDS must be deducted:

• At the time of credit OR
• At the time of payment,

Whichever happens earlier.

TDS applies for all payment modes:

• Cash
• Bank transfer
• Cheque
• Adjustment entry (even if agent retains commission)

Even if recorded under a "suspense account," TDS must be deducted.

When TDS Is Not Applicable Under Section 194H (Exemptions)

No TDS under Section 194H in these cases:

• Commission does not exceed ₹20,000 annually
• Brokerage relating to securities transactions
• Insurance commission (covered under different provisions)
• Professional services (covered under Section 194J)
• Telecom PCO franchisee commission
• RBI turnover commission to agency banks
• NRE savings account interest (fully exempt)
• Trade discounts (not considered commission)

These exclusions help differentiate 194H from other provisions like 194A, 194C, 194Q, and 194R.

TDS Calculation Example: How 194H TDS Works

Example:
Commission paid to an agent = ₹50,000
TDS rate = 2%

TDS = 2% of 50,000 = ₹1,000
Net payout to agent = ₹49,000

If agent does NOT provide PAN → TDS = 20%, i.e., ₹10,000

TDS Deposit & Return Filing Due Dates (FY 2025–26)

TDS Deposit Due Dates

• April–Feb → Before the 7th of next month
• March → Before 30 April 2026

TDS Return (Form 26Q) Due Dates

• Q1: 31 July 2025
• Q2: 31 Oct 2025
• Q3: 31 Jan 2026
• Q4: 31 May 2026

How to Apply for Lower or Nil TDS Deduction Under Section 197?

If your actual tax liability is low or you usually get a refund, you can apply for reduced or zero TDS deduction under Section 197 of the Income Tax Act.

Steps to Apply:

1. Submit Form 13 to your jurisdictional Assessing Officer.
2. If approved, you’ll receive a Section 197 certificate that authorizes the deductor to deduct TDS at a lower rate or not at all.

Details Required for Application:

• Your name and address
• PAN details
• Purpose of payment (reason for TDS)
• Income details of the past 3 financial years
• Estimated income for the current year
• Tax paid in the last 3 years
• Tax paid in the current year

Key Points to Remember Under Section 194H

• TDS applies only if commission > ₹20,000
• GST is NOT included while calculating TDS
• TDS applies even if commission is adjusted/retained
• PAN missing → TDS @ 20%
• Government deductors must deposit TDS same day
• Wrong TDS can cause CPC notices under Section 200A

FAQs on Section 194H

1. What is Section 194H?

It is the commission TDS section that mandates 2% TDS on commission or brokerage payments above the threshold.

2. What is the TDS on commission limit in 2025?

From 1 April 2025, the limit is ₹20,000 per financial year.

3. What is the 194H TDS rate?

The standard rate is 2%, and 20% if PAN is not provided.

4. Is commission taxable under income from other sources?

Normally, commission is taxed under business income, not “income from other sources.”

5. Is 194H applicable on brokerage?

Yes, brokerage is fully covered under Section 194H TDS section.

6. Is GST included while calculating TDS?

No. TDS applies only on the base commission amount, excluding GST.

7. Is 194H applicable on discounts?

No. Trade discounts are NOT considered commission.

8. What is the difference between 194H and 194A?

• 194H → commission
• 194A TDS section → interest payments

9. Can individuals deduct TDS under 194H?

Yes, but only if their previous year turnover exceeds Section 44AB limits.

10. When should TDS be deducted?

At credit or payment, whichever is earlier.