Section 194H - TDS on Commission and Brokerage

Section 194H deals with tax deduction (TDS) at a rate of 2% on commission or brokerage payments (other than insurance commission), applicable when such payment exceeds Rs. 20,000 in a financial year. TDS under this section must be deducted by any resident person and entity including individuals and HUFs, if their total sales, turnover, or gross receipts exceed Rs.1 crore (in case of business) or Rs.50 lakhs (in case of profession) during the preceding financial year.

In this article, we will discuss the TDS on commission and brokerage in detail.

What is Section 194H?

Section 194-H of the Income Tax Act 1961 governs the tax deduction at source (TDS) on payment made as commission or brokerage at a rate of 2%.TDS under this section is to be deducted only if such payment for commission or brokerage exceeds Rs 20,000 in the financial year. 

It means no TDS shall be deducted if payment or aggregate payment for commission or brokerage in the financial year does not exceed Rs.20,000. The threshold limit for section 194H is increased to Rs.20,000, effective 1 April 2025.

Section 194-H applies to any resident person or entity liable for making payment as commission or brokerage, including an individual or a Hindu undivided family (HUFs), whose total sales, gross receipts or turnover exceeded,Rs.1 crore in case of business, or,Rs.50 lacs in case of profession during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid.

It is to be noted that section 194H does not apply to commission payments for insurance and professional services.

What is the Rate of TDS under section 194-H?

• The rate of TDS is 2%. 
• No surcharge, education cess, or SHEC shall be added to the above rates.
• The rate of TDS will be 20% in all cases if the deductee does not quote PAN.

What is the Meaning of Commission and Brokerage under section 194-H?

Commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person.

TDS on commission or brokerage includes,

• for services rendered (not being professional services), or
• for any services in the course of buying or selling of goods, or
• in relation to any transaction relating to any asset, valuable article or thing, except securities

Commission is quite common across industries like real estate, financial services, sales where agents/intermediaries plays a key role in closing the deals or facilitating transactions.

Similarly, brokerage is received by a broker for completing deals between buyers and sellers in markets such as stocks, insurance, real estate etc. 

When does TDS under Section 194H Need to be Deducted?

TDS under Section 194H will be deducted at the time of payment or credit of such income to the account of the payee , whichever is earlier. 

Under What Circumstances TDS u/s 194H is Not Deductible?

• Brokerage or commission is less than or equal to Rs.20,000 in a financial year.
• Any payment of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
• When an employer is paying a commission to the employee, TDS is deducted under Section 192 of the IT Act.
• Brokerage or commission related to transactions in securities.
• Brokerage or commission related to professional services.
• Commission on insurance income and loan underwriting.
• The person can make an application to the assessing officer under Section 197 for deduction of tax at NIL rate or at a lower rate.
• Payments made by television channels/newspaper companies to the advertising agency for booking or procuring of or canvassing for advertisements.
• Turnover Commission payable by the RBI to the Agency Banks.
• No TDS deduction on the interest accrued on NRE accounts.
• Interest earned on deposits in savings bank account, NSC, Indira Vikas Patra and Kisan Vikas Patra are not subject to TDS.

In a significant development, the Supreme Court recently held that under Section 194-H of the Income Tax Act, 1961, cellular mobile service providers are not liable to deduct tax at source on income/profit component in payments received by their franchisees / distributors from third parties/customers.

Section 194-H TDS Deposit Due Date?

TDS deposit and return filing due date for section 194-H of Income Tax Act 1961, given in the table below:

For example, tax deducted on 25 April must be deposited on or before 7 May, and tax deducted on 15 March must be deposited on or before 30 April.

TDS at a Lower Rate

The deductee (the person whose tax is deducted) can make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.

• Validate the PAN of the deductee submitting 197 certificate.
• The Certificate should be valid for the PAN, Section, Rate and relevant financial year which has been mentioned in the statement filed.
• Verify that the threshold limit for the certificate has not been exceeded in previous quarters.
• Correct certificate number should be quoted in the statement. Example of Correct Certificate Number – 3XXXAH7X

Points to Remember about TDS on Commission and Brokerage

• If the commission or brokerage comes under the GST, TDS is deducted from its primary value and is exclusive of the GST component.
• TDS is deducted if the aggregate earnings are more than Rs.20,000.
• Even if the agent retains the commission amount while setting payment, the TDS will be deposited to the government.
• When a TDS deduction is made on behalf of or by the government, it is deposited on the same day.