Section 194H of the Income Tax Act

Section 194H of the Income Tax Act mandates deduction of 2% TDS on commission or brokerage paid to a resident, if the payment exceeds Rs. 15,000 in a financial year (the threshold increases to Rs. 20,000 from April 1, 2025). Individuals and Hindu Undivided Families (HUFs) are required to deduct TDS only if their turnover from business exceeds Rs. 1 crore or their gross receipts from profession exceed Rs. 50 lakh in the preceding financial years.
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2 min read
01 August 2025

Section 194H of the Income Tax Act focuses on the deduction of Tax Deducted at Source (TDS) on commission and brokerage payments. This section applies when a person, other than an individual or a Hindu Undivided Family (HUF), pays a resident commission or brokerage exceeding Rs. 20,000 in a financial year. The standard TDS rate applicable is 2%. The provision helps ensure timely collection of taxes at the source and is relevant for a wide range of commercial and non-professional services. In this article, we explore the applicability, exemptions, deduction timeline, and rates under Section 194H in detail.

What is Section 194H of Income Tax Act

Section 194H of the Income Tax Act, 1961, is a crucial provision that deals with Tax Deducted at Source (TDS) on income by way of commission or brokerage. The primary objective of this section is to ensure that tax is deducted at the source when specified payments are made, helping streamline the taxation process and prevent tax evasion.

This section mandates that TDS be deducted at 2% when the total commission or brokerage paid during a financial year exceeds Rs. 20,000. However, individuals and HUFs are required to deduct TDS only if their business turnover exceeds Rs. 1 crore or professional receipts are more than Rs. 50 lakh. Notably, commission related to insurance is governed under Section 194D and does not fall under Section 194H. The Union Budget 2024 also announced a rate reduction from 5% to 2%, applicable from 1st October 2024. During the COVID-19 relief period (14 May 2020 to 31 March 2021), the rate was temporarily reduced to 3.75%.

In this article, we will delve into the purpose, applicability, key provisions, entities involved, and recent amendments in Section 194H.

Purpose of Section 194H

The fundamental purpose of Section 194H is to curb tax evasion by ensuring that tax is deducted at the source itself. By mandating the deduction of TDS on payments related to commission or brokerage, the government can efficiently collect taxes and discourage the concealment of income.

Applicability of Section 194H in taxation

Section 194H is applicable to a wide range of transactions involving the payment of commission or brokerage. It covers various entities engaged in such transactions, including individuals, firms, companies, and other associations of persons.

Key provisions of Section 194H

1. Covered payments, thresholds, and TDS rates:

  • Covered payments: Section 194H applies to payments made by a person to another person for services related to commission or brokerage.
  • Thresholds: The TDS provisions of this section are triggered when the aggregate amount of such payments exceeds a specified threshold.
  • TDS rates: The TDS is deducted at a prescribed rate on the gross amount paid, and the payer is responsible for deducting and remitting the TDS to the government.

2. Entities and transactions:

  • Entities: Section 194H encompasses a broad spectrum of entities involved in commission or brokerage transactions, including individuals, firms, companies, and associations of persons.
  • Transactions: Payments made for services that involve commission or brokerage are subject to TDS under this section.

3. Payer and payee criteria:

  • Payer: Any person responsible for making payments related to commission or brokerage is considered the payer.
  • Payee: The recipient of the commission or brokerage payments is referred to as the payee.

4. Types of transactions subject to TDS:

  • Commission on sales.
  • Brokerage fees.
  • Any payment for professional services rendered in connection with the above.
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Meaning of commission and brokerage

Commission: Commission is a fee or compensation paid for services rendered, commonly as a percentage of the transaction value. It applies to various industries, such as sales, real estate, stock trading, insurance, travel, and art sales.

Brokerage: Brokerage is the compensation or fee charged by a broker for facilitating transactions between parties. Brokers act as intermediaries in industries like stock trading, real estate, insurance, shipping, customs, and forex, earning fees for their facilitation services.

What are the inclusions of TDS in commission and brokerage?

Tax Deducted at Source (TDS) on commission and brokerage is applicable across various types of transactions and services. The following are the inclusions under Section 194H:

  • Non-professional services: TDS applies to payments for services rendered as commission or brokerage, provided these are not categorised under professional services.
  • Transactions related to sale or purchase of products: Any fee or payment received for facilitating the purchase or sale of goods is subject to TDS. For example, brokers assisting in product deals are covered under this provision.
  • Brokerage on high-value assets: TDS also applies to services related to transactions involving high-value items or physical assets, excluding dealings in securities.
  • Intermediary services: Agents who act as intermediaries between buyers and sellers in exchange for a commission or brokerage fall within the scope of TDS under this section.

The intent is to ensure that tax is collected at the point of payment and to maintain traceability for these non-salaried income streams.

TDS deduction on commissions and brokerages exemption explained

Certain payments categorised as commission or brokerage are exempt from TDS under Section 194H. These include:

  • Reserve Bank of India (RBI): Payments made by the RBI to financial institutions are exempt from TDS obligations.
  • Underwriters: Commission paid to underwriters for insurance policies or loans is not subject to TDS under this section.
  • Public offering charges: Brokerage linked with the public offering of securities is excluded from TDS deductions.
  • Stock market commissions: Brokerage or commission earned on the sale or purchase of securities listed on recognised stock exchanges is exempt.
  • Life Insurance Corporation (LIC) and cooperative societies: Commission related to LIC investments or dealings with cooperative societies are excluded.
  • Financial corporations: Commissions or similar payments to financial corporations under the Central Finance Bill are not liable for TDS.
  • Tax refunds and direct tax payments: Commission or brokerage amounts connected to tax refunds or direct tax payments are outside the purview of TDS under Section 194H.
  • Interest from certain schemes: TDS is not applicable to interest earned from savings accounts, NSCs, Kisan Vikas Patra, and Indira Vikas Patra.
  • NRE accounts: Interest income from Non-Resident External (NRE) accounts is exempt from TDS.
  • BSNL & MTNL franchisees: Commissions received by public call office franchisees from BSNL or MTNL are not subject to TDS.
  • Institutions marked NIL TDS: Any public or private institution officially listed for NIL TDS compliance is exempt.
  • Motor vehicle claims: Compensation interest from the Motor Vehicle Claims Tribunal is also excluded.

Understanding these exemptions ensures that deductions are not made incorrectly, and compliance is maintained without unnecessary tax payments.

When does TDS under Section 194H need to be deducted?

TDS under Section 194H must be deducted either at the time the payment is made or when the amount is credited to the payee’s account—whichever occurs earlier. This ensures timely collection of tax and prevents delay in tax liability. The deduction applies regardless of the mode of payment, including cash, cheque, electronic transfer, or journal entries.

What is the rate of TDS?

The standard rate of TDS under Section 194H is 2%.

  • No additional surcharge, health and education cess, or SHEC is added to this rate.
  • If the deductee fails to provide their Permanent Account Number (PAN), a higher TDS rate of 20% is applicable.

It is crucial for payers to ensure that PAN details are furnished by the recipient to avoid deduction at the higher rate.

Managing tax compliance effectively helps preserve more of your income for important goals like homeownership. Whether you are earning commission income or planning your next big purchase, having the right financial partner matters. Explore home loan options from Bajaj Finserv with flexible tenures up to 32 years. Check your loan offers with Bajaj Finserv today. You may already be eligible, find out by entering your mobile number and OTP.

Under what circumstances is TDS u/s 194H not deductible?

TDS under Section 194H is not required in the following situations:

  • Commission or brokerage up to Rs. 20,000: If the total amount paid during a financial year does not exceed Rs. 20,000, no TDS is applicable.
  • Payments by BSNL or MTNL to franchisees: Commission paid to public call office franchisees by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited is exempt.
  • Employer to Employee: When commission is paid to an employee, it is treated as salary and taxed under Section 192.
  • Professional services: Commission or brokerage linked to professional services is excluded, as such services fall under different TDS provisions.
  • Securities Transactions: Brokerage related to the sale or purchase of securities is not covered under Section 194H.
  • Insurance and loan underwriting: Payments linked to insurance commission and loan underwriting are dealt with under other sections, such as 194D.
  • Lower or nil deduction certificate (Section 197): The payee can apply to the assessing officer for a certificate permitting deduction of TDS at a lower or nil rate.
  • Advertising commissions: Payments made by TV channels or newspapers to advertising agencies for canvassing ads are exempt.
  • Turnover commission by RBI: RBI’s turnover commissions paid to Agency Banks are not subject to TDS.
  • NRE account interest: Interest from Non-Resident External accounts is not liable for TDS.
  • Interest from government schemes: No TDS applies to interest earned from NSC, Indira Vikas Patra, Kisan Vikas Patra, or regular savings accounts.
  • Supreme Court judgement on Telecom: Cellular service providers are not required to deduct TDS on income or profits received by distributors/ franchisees from customers, as clarified by a Supreme Court ruling.

These exemptions provide relief in specific scenarios and prevent unnecessary deduction or procedural hassle.

What is the time limit for depositing TDS?

  • TDS deducted from April to February must be deposited on or before the 7th of the following month.

  • TDS deducted in March must be deposited on or before 30th April.

  • Example:

    • If TDS is deducted on 25 April, the due date is 7 May.

    • If TDS is deducted on 15 March, the due date is 30 April.

Timely deposit of TDS is crucial to avoid interest and penalties from the Income Tax Department.

TDS at a lower rate

  • A deductee (the person receiving commission/brokerage) may apply to the Assessing Officer under Section 197 for deduction of TDS at a lower rate or NIL rate.

  • The application must be made in the prescribed form and supported by valid documentation showing estimated income and tax liability.

  • Before deducting tax at the lower rate, the deductor must:

    • Verify PAN of the deductee.

    • Ensure the certificate is valid for the PAN, relevant section (194H), applicable rate, and financial year.

    • Check that the threshold limit mentioned in the certificate has not been exceeded in previous quarters.

    • Quote the correct certificate number in the TDS return.

      • Example of correct format: 3XXXAH7X

This provision helps eligible recipients manage their cash flow better and prevents excessive tax deduction in advance.

Optimising your tax deductions and managing cash flow effectively can free up funds for major life goals like purchasing a home. With proper financial planning, homeownership becomes more achievable. Bajaj Finserv offers home loans up to Rs. 15 Crore* with quick approval in 48 hours*. Check your eligibility for a home loan from Bajaj Finserv now. You may already be eligible, find out by entering your mobile number and OTP.

Points to remember about TDS on commission and brokerage

  • If the commission or brokerage includes GST, TDS is to be deducted only on the base amount, excluding the GST component.
  • TDS is applicable only when the total commission or brokerage exceeds Rs. 20,000 in a financial year.
  • Even when the commission is adjusted internally and not paid directly (i.e., the agent retains it from the final settlement), the TDS liability still exists and must be deposited to the government.
  • If TDS is deducted on behalf of or by the government, it must be deposited on the same day without delay.

Staying compliant with these points helps avoid penalties and ensures smooth tax filing for both payer and payee.

Conclusion

Section 194H is a key provision in the Income Tax Act that ensures proper tax collection on commission and brokerage payments. By mandating TDS deductions on eligible transactions, the section not only facilitates timely tax compliance but also supports transparency and traceability of income. It is essential for businesses, organisations, and professionals making such payments to be aware of the applicable rates, exemptions, and time limits for depositing TDS.

Understanding when TDS is not required—such as payments below Rs. 20,000, certain exempted transactions, or where lower/nil rate certificates are issued—can help avoid unnecessary deductions and reduce compliance burdens. With recent amendments and rate revisions, keeping up to date with Section 194H provisions is crucial for all stakeholders.

By following the prescribed guidelines, deductors can avoid penalties and interest charges, while recipients can ensure smooth refunds or credit when filing their tax returns. In summary, proper understanding and execution of TDS obligations under Section 194H contribute to responsible financial management and adherence to tax laws.

Responsible financial management extends beyond tax compliance to achieving your long-term goals like homeownership. With the savings from proper tax planning, you can take the next step towards buying your dream home. Bajaj Finserv offers attractive home loan rates starting from 7.45%* p.a with no foreclosure charges for individual borrowers. Check your home loan eligibility with Bajaj Finserv today. You may already be eligible, find out by entering your mobile number and OTP.

Related income tax sections

Section 16(ia)

Section 194IA

Section 80G

Section 80GGC

Section 80CCE

Section 179

Section 54B

Section 17(1)

Section 54GB

Section 80RRB

 

Category

Relevant URLs

Income tax deductions

Section 80CCD(2), Section 80CCD(1B), Section 80CCD1, Section 80CCE, Section 80DD, Section 80DDB, Section 80E, Section 80EEA, Section 80G, Section 80GG, Section 80GGC, Section 80RRB, Section 80TTA, Section 80U

Salary and allowance related sections

Section 16(ia), Section 16(ii), Section 17, Section 17(1), Section 10(13A), Section 89

Property and capital gains tax

Section 24B, Section 54B, Section 54GB, Section 54F, Section 54

TDS and withholding tax

Section 194H, Section 194IA, Form 26QB

Income tax compliance and notices

Section 139(9), Section 143(1), Section 148, Section 179, Section 56(2)(x)

SARFAESI Act (Loan Recovery & Security Enforcement)

Section 13, Section 13(2), Section 13(4), Section 14


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Frequently asked questions

Can the income tax calculator assist in understanding the applicability of Section 194H to different business transactions?

Yes, an Income Tax Calculator can help determine the applicability of Section 194H by calculating the tax deduction on commission or brokerage payments. By inputting relevant transaction details, businesses can easily understand their tax obligations and ensure compliance with TDS regulations under Section 194H.

Are there any reporting requirements related to Section 194H that the income tax calculator addresses?

Yes, the Income Tax Calculator addresses reporting requirements related to Section 194H by providing clarity on TDS deductions. It helps businesses accurately calculate and report TDS on commissions, ensuring compliance with income tax regulations and timely filing of TDS returns.

Can the income tax calculator assist in understanding the applicability of Section 194H to different business transactions?

Yes, an Income Tax Calculator can help in understanding the applicability of Section 194H to various business transactions. By inputting details such as commission payments, the calculator can determine whether these transactions fall under the scope of Section 194H, which deals with the deduction of tax on commission or brokerage.

Are there any reporting requirements related to Section 194H that the income tax calculator addresses?

Yes, the Income Tax Calculator can assist with reporting requirements related to Section 194H. It helps in calculating the appropriate tax deductions and ensuring compliance with reporting obligations. This includes generating accurate reports and statements needed for tax filing, making it easier to adhere to regulatory requirements.

Is TDS under Section 194H applicable to tickets issued by airlines to travel agents at a concessional price?

No, TDS under Section 194H does not apply in such cases. As per the ruling in CIT v. Singapore Airlines Ltd., the relationship between airlines and travel agents was considered to be on a principal-to-principal basis. The reduced ticket price was treated as a discount, not commission, and thus falls outside the scope of Section 194H.

Is Section 194H applicable to trade incentives to dealers?

Yes, in certain cases. In Tube Investments of India Ltd. v. ACIT, the tribunal ruled that if dealers are selling goods at the same price they purchased them for, then any additional trade incentive given is treated as commission. Hence, TDS under Section 194H would apply, since such incentives are not considered mere discounts but payments for services rendered.

Is TDS under Section 194H deductible on turnover commission payable by RBI to Agency Banks?

No, TDS under Section 194H does not apply in this case. Turnover commission paid by the Reserve Bank of India (RBI) to Agency Banks for handling government business is specifically excluded from TDS. These payments are made under a statutory role and are not treated as commission in the commercial sense.

When should you deduct TDS (point of deduction) under Section 194H?

TDS under Section 194H must be deducted at the earlier of two events: when the payment is actually made or when the income is credited to the recipient’s account. This includes credit to any account by any name, not just a specific ledger. Timely deduction ensures compliance with tax laws and prevents penalties.

What is the rate of TDS deduction under Section 194H?

The standard TDS rate under Section 194H is 2%. However, if the deductee does not provide their PAN, the TDS must be deducted at a higher rate of 20%. No additional surcharge or cess is added to this rate, making it straightforward to calculate the amount to be deducted.

What happens if TDS is deducted but not deposited?

If TDS is deducted but not deposited, interest becomes payable. The deductor is liable to pay interest at the rate of 1.5% per month or part of a month on the amount from the date it was deductible to the actual date of deposit. Failure to deposit may also attract penalties and prosecution under the Income Tax Act.

Avoiding such penalties through proper compliance helps maintain healthy finances for achieving your goals like homeownership. When you are ready to invest in property, ensure you have the right financing partner. Bajaj Finserv offers hassle-free home loans with doorstep document collection and quick processing. Check your loan offers from Bajaj Finserv now. You may already be eligible, find out by entering your mobile number and OTP.

Can we deduct our expenses from commission income?

Yes, you can. Any expenses that are directly related to earning commission income—such as travel, communication, or office costs—can be deducted while computing your taxable income. These must be legitimate business expenses, properly documented and in line with the Income Tax rules for allowable deductions when filing your return.

Smart expense management and tax planning can significantly improve your financial position, creating opportunities for major investments like buying a home. If you are considering property investment, Bajaj Finserv provides home loans with competitive rates and flexible terms. Check your eligibility for a home loan from Bajaj Finserv today. You may already be eligible, find out by entering your mobile number and OTP.

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