TDS · Commission and Brokerage
194h Of Income Tax Act (India, 2026)
Section 194H deals with tax deducted at source (TDS) on commission or brokerage. If your business pays commission to agents, dealers or brokers above a threshold, you have to deduct TDS before paying them and deposit it with the government. This explainer sets out what section 194H covers, who must deduct, the current rate and threshold, the common exclusions, and how to stay compliant.
- What it covers: TDS on commission or brokerage paid to a resident.
- Rate: 2 per cent, reduced from 5 per cent with effect from 1 October 2024; 20 per cent if the payee gives no PAN.
- Threshold: no TDS if annual commission is at or below the notified limit; confirm the current figure.
- Who deducts: any payer, with individuals and HUFs generally only when their turnover crossed the audit limit.
- Excluded: brokerage on securities and insurance commission (which is under 194D).
- Compliance: deduct, deposit monthly, file Form 26Q quarterly, issue Form 16A to the payee.
01What section 194H covers
Section 194H requires a person paying commission or brokerage to a resident to deduct TDS before making the payment. The idea is to collect tax at the point the income arises, so the agent or broker reports income that the department already has a record of.
It applies to a wide range of arrangements where someone is paid for arranging a sale, a service, or a transaction on behalf of another, as long as it is not covered by a more specific section.
Commission income, not professional fees
Section 194H is about commission and brokerage. Payments that are really professional or technical fees fall under section 194J instead, and rent falls under section 194I. Classifying the payment correctly decides which section and rate apply.
02Who has to deduct
Any person paying commission or brokerage has to deduct, except that an individual or Hindu Undivided Family (HUF) is generally only required to deduct if their business turnover or professional receipts crossed the tax audit limit in the preceding year.
So a large company paying sales commission clearly has to deduct. A very small proprietor below the audit threshold usually does not. If you do deduct, you need a TAN, you deposit the TDS monthly, and you report it in a quarterly TDS return.
03Rate and threshold
Two numbers matter: the rate of TDS and the threshold below which you do not deduct at all.
| Item | Position |
|---|---|
| TDS rate | 2 per cent (reduced from 5 per cent with effect from 1 October 2024) |
| If payee has no PAN | Higher rate of 20 per cent applies |
| Threshold | No TDS if total commission or brokerage in the year is at or below the notified limit |
The rate was reduced to 2 per cent from 1 October 2024. The annual threshold has commonly been Rs 15,000 and has reportedly been raised; confirm the current threshold for your financial year before relying on it. If the payee does not give a valid PAN, the higher 20 per cent rate applies.
04What counts as commission or brokerage
Commission or brokerage under section 194H broadly means a payment received or receivable, directly or indirectly, by a person acting on behalf of another for:
- services rendered (other than professional services), or
- any services in the course of buying or selling goods, or
- in relation to any transaction concerning an asset, valuable article or thing (other than securities).
Typical examples are sales commission to agents, dealer incentives that are really commission, and brokerage on property or goods transactions.
05When 194H does not apply
Some payments are specifically outside section 194H:
- Brokerage on securities: commission or brokerage on the purchase or sale of securities is excluded.
- Insurance commission: covered separately under section 194D, not 194H.
- Payments below the threshold: no deduction if the annual commission is at or below the notified limit.
- Certain payments by BSNL or MTNL to public call office franchisees, as specifically exempted.
Where the arrangement is really a principal to principal sale rather than an agency, tax authorities and courts have sometimes held that it is a discount, not commission, so 194H may not apply. This is a fact-specific area, so get borderline cases reviewed. Related sections are explained in section 194I on rent and section 194J on professional and technical fees.
06How to comply
- Get a TAN if you must deduct and do not already have one.
- Deduct at the right rate at the time of credit or payment, whichever is earlier.
- Deposit the TDS with a challan by the monthly due date.
- File the quarterly TDS return (Form 26Q) reporting the deduction.
- Issue Form 16A to the payee from the TRACES portal so they can claim credit.
Late deduction or late deposit attracts interest, and a late return attracts a per-day fee, so timing matters.
07How Claw Tax helps
Claw Tax and Accounts is an online tax, GST and accounting service for India that connects you with a verified chartered accountant at a fixed, published price, with a Claw reviewer checking every filing before it is submitted.
If you pay commission regularly, you can handle 194H yourself: deduct, deposit and file the quarterly return. The usual mistakes are applying the old 5 per cent rate instead of 2 per cent, missing the PAN rule, or treating a discount as commission (or the reverse).
With Claw Tax and Accounts TDS filing, a verified chartered accountant works out the correct rate and threshold, prepares and files your quarterly TDS return, and a Claw reviewer checks it before upload, at a fixed, published price, with reminders before each due date. You approve first.
This is not tax advice; a verified CA handles your specifics, and section references may change as the Income-tax Act 2025 replaces the 1961 Act. For a done-for-you option, see TDS return services in India.
08Frequently asked questions
What is section 194H of the Income Tax Act?
Section 194H requires a person paying commission or brokerage to a resident to deduct TDS before making the payment and deposit it with the government. It covers sales commission, dealer commission and brokerage on goods or property transactions, but not insurance commission or brokerage on securities.
What is the TDS rate under section 194H?
The rate is 2 per cent, reduced from 5 per cent with effect from 1 October 2024. If the payee does not provide a valid PAN, the higher rate of 20 per cent applies. Confirm the current rate for your financial year before relying on it.
What is the threshold for TDS under 194H?
No TDS is deducted if the total commission or brokerage paid in the financial year is at or below the notified threshold. This has commonly been Rs 15,000 and has reportedly been raised, so confirm the current limit for your year.
Does section 194H apply to insurance commission?
No. Insurance commission is covered separately under section 194D, not section 194H. Similarly, brokerage on the purchase or sale of securities is specifically excluded from 194H.
Who must deduct TDS under section 194H?
Any person paying commission or brokerage must deduct, except that an individual or HUF generally only has to deduct if their business turnover or professional receipts crossed the tax audit limit in the preceding year. A deductor needs a TAN, deposits the TDS monthly and files a quarterly return.
Is a trade discount treated as commission under 194H?
Not necessarily. Where the arrangement is a genuine principal to principal sale, a discount may not be commission, so 194H may not apply. This is fact-specific and has been litigated, so borderline cases, such as dealer margins versus commission, should be reviewed before you decide whether to deduct.