Section 194H — TDS on Commission + Brokerage (FY 2025-26)

What 194H covers

Section 194H of the Income-tax Act 1961 requires TDS on commission or brokerage paid to a resident. The provision targets payments to intermediaries acting on behalf of another person — sales agents, buying / selling agents, auctioneers, agency commission earners.

Section 194H is the residual section for commission / brokerage. If the payment falls within a more specific provision (insurance → 194D; e-commerce operator → 194O; professional services → 194J), the specific provision overrides. The Section 194H scope is what remains after these overrides.

Who must deduct

The obligation depends on the deductor’s entity type:

Companies, firms, LLPs, AOPs, BOIs — always required

Any artificial juridical person — company, partnership firm, LLP, AOP, BOI, society, trust, local authority — must deduct under Section 194H when the threshold is breached. There is no audit-status carve-out for these entities.

Individuals + HUFs — only if in tax audit

An individual or HUF is required to deduct under Section 194H only if their books were subject to Section 44AB tax audit in the immediately preceding FY. The audit thresholds:

• Business turnover > ₹1 cr (or ₹10 cr if digital receipts / payments ≥ 95% of turnover)
• Profession gross receipts > ₹50L (₹75L for digital-receipt cases)

A non-audit individual / HUF is outside Section 194H entirely — no commission TDS obligation, even on payments above the threshold.

Threshold + rate

Annual ₹20,000 threshold (per payee per FY)

Effective 1 April 2025, the threshold for Section 194H is ₹20,000 aggregate per payee per FY (raised from the earlier ₹15,000 by Finance Act 2025).

• Below ₹20,000 aggregate in the FY → no TDS
• At or above ₹20,000 → TDS on the full aggregate amount including amounts paid in earlier months of the same FY before the threshold was crossed (catch-up deduction)

Rate: 2%

The rate is 2% for FY 2025-26. This was reduced from 5% by the Finance (No. 2) Act 2024, effective 1 October 2024. There is no separate company / non-company split for 194H (unlike Section 194D for insurance commission, which differs by deductee type).

No-PAN: 20% under Section 206AA

If the deductee fails to furnish a valid PAN, Section 206AA invokes a penal rate of 20%. The deductor must collect PAN before the first payment to avoid this exposure.

What qualifies as “commission or brokerage”

Per the Explanation to Section 194H, “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for:

• Services rendered (other than professional services covered under 194J)
• Buying or selling of goods
• Transacting in any asset, valuable article, or thing (other than securities)

Specific categories that fall within 194H:

• Sales-agent commission — payment to an agent for securing orders or facilitating sale of goods
• Buying / selling agent commission — fees paid to a middleman procuring raw materials or selling finished goods
• Auctioneer’s brokerage — fees paid to an auctioneer for facilitating the sale of an asset
• Channel-partner commission — distributor / dealer commission where the structure is commission-based (not margin-based)

What does NOT qualify

Several intermediary-payment categories are explicitly outside Section 194H:

• Insurance commission — governed by Section 194D (different rate + threshold)
• Securities brokerage — explicitly excluded by the Explanation. Stockbroker fees on NSE / BSE / commodity-exchange trades do not attract 194H
• Professional fees — governed by Section 194J (10% for professional services, 2% for technical services)
• Trade discount on goods sold — a margin given to a distributor on outright sale (title + risk transferred) is not commission. No TDS applies
• Cash discount for early payment — not commission, no TDS
• Bank discounting charges on bills of exchange — not commission per Circular 65/1971 (continued treatment)

E-commerce intermediary fees — overlap with Section 194O

The introduction of Section 194O (Finance Act 2020) carved out e-commerce operator fees from the broader 194H scope.

When 194O applies

If an e-commerce operator (Amazon, Flipkart, Zomato, Swiggy, etc.) facilitates the sale of goods / services for an e-commerce participant (the seller using the platform), the operator must deduct TDS at 0.1% on the gross amount of sales under Section 194O — not 194H.

When 194H applies

Outside the digital-marketplace scenario — offline agency commission, traditional sales-agent commission, channel-partner commission, brokerage in non-electronic transactions — falls back to Section 194H at 2%.

Where the operator simultaneously charges a platform-facilitation fee in addition to the 194O-covered sale amount, the platform fee may attract 194H or 194J depending on its nature (the analysis is fact-specific).

GST exclusion from TDS base

Per CBDT Circular 23/2017, where a commission agent registered under GST issues an invoice showing GST separately, TDS under Section 194H is computed on the base commission amount excluding GST.

• GST shown separately: TDS on net of GST. Invoice ₹1,00,000 base + 18% GST (₹18,000) = ₹1,18,000 total → TDS on ₹1,00,000 = ₹2,000
• Composite invoice (no separate GST line): TDS on the gross amount

Where the deductee invoices on a “GST included in price” basis without separately showing GST, the TDS base is the gross. Insisting on a separately-shown GST line in vendor invoices is the operational fix.

Timing of deduction + deposit

Deduction timing

TDS must be deducted at the time of credit of commission to the payee’s account (or any account by whatever name in the deductor’s books) or payment, whichever is earlier. Crediting to “commission payable” or a similar suspense account triggers the deduction obligation even before actual cash payment.

Deposit timing

• Tax deducted in a month must be deposited by the 7th of the following month via Challan ITNS 281
• Tax deducted in March must be deposited by 30 April

Reporting

• Form 26Q (non-salary TDS return) — quarterly. Due dates: Q1 by 31 July, Q2 by 31 October, Q3 by 31 January, Q4 by 31 May
• Form 16A (TDS certificate to deductee) — within 15 days of the Form 26Q due date, downloadable from TRACES

For the TRACES Form 16A download + correction workflow, see the TRACES Portal Walkthrough.

Worked examples

Single payment crossing the threshold

A company pays a sales agent ₹50,000 commission in August 2025 (first payment in the FY).

• Threshold ₹20,000 breached by this single payment
• TDS = 2% × ₹50,000 = ₹1,000
• Net paid: ₹49,000

Aggregate crossing across the year

A distributor pays a local agent ₹4,000 per month.

• April → August (5 months): aggregate ₹20,000 — at threshold (does not exceed). No TDS.
• September: payment of ₹4,000 brings aggregate to ₹24,000 → threshold exceeded.
• TDS on the full ₹24,000 (catch-up) = 2% × ₹24,000 = ₹480, deducted from the September payment.
• October onwards: every payment is subject to 2% TDS until the FY ends.

Multiple payees — threshold tested per payee

Business pays Agent A ₹18,000 + Agent B ₹19,000 in the FY:

• Agent A aggregate ₹18,000 < ₹20,000 → no TDS
• Agent B aggregate ₹19,000 < ₹20,000 → no TDS

Both stay below threshold individually; combined ₹37,000 is irrelevant because the threshold is per-payee.

Comparison: 194H vs 194J vs 194D vs 194O

Feature	194H (Commission)	194J (Professional / Technical)	194D (Insurance commission)	194O (E-commerce operator)
Nature of payment	Agency, buying / selling intermediary	Specified professional + technical services	Insurance agency commission	E-commerce facilitation
Rate (FY 2025-26)	2%	10% (professional) / 2% (technical)	2% (resident non-company, post FY 2025-26 rate cut) / 10% (company)	0.1%
Threshold	₹20,000 / FY / payee (Finance Act 2025)	₹50,000 / FY / payee per nature of service (Finance Act 2025)	₹20,000 / FY / payee (Finance Act 2025)	₹5L (for individual / HUF e-commerce participants)
Deductee type	Resident only	Resident only	Resident only	Resident e-commerce participant
Audit-status carve-out for individual / HUF deductor	Yes (only audit)	Yes (only audit)	None — applies to all insurers	None — applies to all e-commerce operators
TDS form	26Q	26Q	26Q	26Q

Common 194H mistakes

1. Treating consultant fees as commission — labelling a management consultant’s invoice as “commission” and deducting 2% under 194H instead of 10% under Section 194J. Trigger: 8-percentage-point short-deduction notice + Section 201(1A) interest at 1% / month from the date of deduction to actual payment.
2. Missing aggregate threshold — deducting only when a single payment crosses ₹20,000 rather than tracking cumulative payments per payee. Catch-up deduction on the full aggregate is required at the month the threshold is crossed.
3. Including GST in the TDS base — over-deducting by 2% × 18% = 0.36% of the gross invoice. Vendor disputes follow; reconciliation in the deductee’s 26AS does not match the invoice.
4. Applying 194H to insurance commission — should go under Section 194D (different rate, different reporting position in Form 26Q).
5. Applying 194H to stockbroker fees — explicitly excluded by the Explanation. No TDS at all (broker reports the income in their own return).
6. Treating trade discount as commission — a margin given on outright sale (where title + risk pass to the dealer) is not commission. No TDS.
7. Applying the old ₹15,000 threshold post 1 April 2025 — the threshold is now ₹20,000. Continuing to deduct between ₹15,001 and ₹19,999 unnecessarily ties up vendor cash.
8. Applying the old 5% rate post 1 October 2024 — the rate is 2%. Over-deduction creates vendor disputes; vendor must claim refund through their own return.

For the broader FY 2025-26 TDS framework + cross-section rate reference, see the TDS Rate Chart FY 2025-26 and the TDS overview pillar. For end-to-end Form 26Q + Form 16A + TRACES reconciliation, see the TDS Return Filing service.