Section 194H: TDS on Commission and Brokerage
Understand when tax must be deducted from commission or brokerage, the applicable rate, the annual payment threshold, exclusions and the corresponding provisions of the Income-tax Act, 2025.
What is Section 194H?
Section 194H of the Income-tax Act, 1961 required specified payers to deduct tax at source on commission or brokerage paid or credited to a resident. Insurance commission covered by Section 194D is excluded. For payments governed by the Income-tax Act, 2025, the corresponding rules are consolidated in Section 393, including Section 393(1), Table Serial No. 1(ii).
The provision applies to commission for acting on behalf of another person, including qualifying services relating to the purchase or sale of goods and transactions concerning assets or valuable articles, but excludes specified professional services and transactions in securities.
Applicable TDS rate and threshold
| Particular | Rule |
|---|---|
| TDS rate | 2% (reduced from 5% with effect from 1 October 2024) |
| Annual threshold | Rs. 20,000 per payee (increased from Rs. 15,000 with effect from 1 April 2025) |
| When to deduct | At credit to the payee's account or actual payment, whichever is earlier |
| Recipient | Resident payee |
| Exclusion | Insurance commission governed separately; specified BSNL/MTNL PCO franchisee commission |
When the aggregate amount paid, credited or likely to be paid or credited to the same resident payee during the financial year does not exceed Rs. 20,000, deduction under this provision is not required. Once the threshold is crossed, TDS ordinarily applies to the qualifying commission or brokerage, not merely the amount exceeding Rs. 20,000.
Who must deduct TDS?
Companies, firms and other persons responsible for covered payments must deduct tax. An individual or Hindu undivided family is also covered where business turnover exceeded Rs. 1 crore, or professional gross receipts exceeded Rs. 50 lakh, in the immediately preceding financial year, subject to the applicable statutory conditions. The classification of the payer and nature of the payment should be reviewed before deduction.
Meaning of commission or brokerage
The statutory definition includes any amount received or receivable, directly or indirectly, by a person acting on behalf of another for services rendered other than professional services, or services in the course of buying or selling goods, or transactions relating to an asset, valuable article or thing other than securities.
Professional services
Professional services include services in legal, medical, engineering, architectural, accountancy, technical consultancy and interior decoration professions and other notified professions. Such payments may instead fall under the separate rules for professional or technical fees.
Securities
The term securities follows the meaning assigned under Section 2(h) of the Securities Contracts (Regulation) Act, 1956. Brokerage on securities is therefore not automatically covered by Section 194H.
Credit to suspense account
Crediting an amount to a suspense account or another account in the payer's books is treated as credit to the payee for this purpose; merely changing the account name does not defer TDS.
Exemptions and special situations
No deduction under Section 194H is required for qualifying commission or brokerage payable by Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL) to their public call office franchisees. Insurance commission is dealt with separately under Section 194D. Payments to non-residents must be examined under the applicable non-resident withholding provisions rather than assuming Section 194H applies.
Income-tax Act, 2025: corresponding provision
From 1 April 2026, the Income-tax Act, 2025 reorganizes non-salary TDS provisions into Section 393. Commission or brokerage payable to residents is addressed under Section 393(1), Table Serial No. 1(ii), with the applicable definitions, payer conditions and threshold read together with that Act and the relevant Finance Act. References to Section 194H remain useful when considering earlier financial years and historical assessments.
Compliance considerations
The deductor should verify the recipient's residency, PAN, nature of service, applicable threshold and any valid certificate or declaration. Tax deducted must be deposited within the prescribed time, reported in the relevant TDS statement and supported by the appropriate TDS certificate. Higher deduction provisions may apply where PAN requirements are not met.
Frequently asked questions
Is the TDS rate on brokerage 5%?
No. The standard rate was reduced to 2% from 1 October 2024.
Is TDS required if annual commission is exactly Rs. 20,000?
Not solely under the normal threshold rule. Deduction generally becomes applicable when the qualifying annual amount exceeds Rs. 20,000.
Does Section 194H cover insurance agents?
Insurance commission covered by Section 194D is expressly excluded from Section 194H.
Does the rule apply to non-resident agents?
Section 194H concerns payments to residents. Non-resident payments require separate examination under the applicable withholding rules and treaty provisions.
Official legal references
Consult the Income Tax Department's Section 194H text, the official TDS rate table, and the Income Tax Department guidance on the 2025 Act's TDS provisions. For historical background, Section 194H was originally introduced with effect from 1 October 1991, omitted from 1 April 2000 and reintroduced from 1 June 2001; later amendments changed its rates and thresholds.
Last reviewed: 27 October 2026. This article provides general legal information; individual transactions may require professional examination.