The TDS provision for commission and brokerage payments is generally referred to as Section 194H. It comes into play when a company pays commissions to brokers, distributors, agents, or other middlemen for services that qualify. But starting of April 1, 2026, the previous section numbering has been changed by the Income-tax Act, 2025. Section 393(1), Table Sl. No. 1(ii) now addresses the same general TDS obligation. A ₹20,000 yearly barrier and additional requirements apply to the present rate of 2%. Sharda Associates assists companies with reviewing TDS eligibility,calculating deductions, filing TDS forms, and fixing commission and brokerage payment compliance issues.
Section 194H at a Glance
Particular | Current Position |
Nature of Payment | Commission or Brokerage |
Current TDS Rate | 2% |
Annual Threshold | ₹20,000 |
Payee | Resident |
Current Provision from 1 April 2026 | Section 393(1), Table Sl. No. 1(ii) |
Earlier Provision | Section 194H |
What Is Section 194H?
When paying commission or brokerage to a resident, qualifying payers were obligated by Section 194H of the previous Income-tax Act, 1961 to deduct tax. Transactions credited or paid after April 1, 2026, fall under the relevant section of the Income-tax Act, 2025, even if individuals will still be looking for “Section 194H.” The law’s numbers and structure are the primary areas of change. The fundamental idea remains the same: TDS must be subtracted when an eligible business pays commission or brokerage in excess of the specified amount. Instead of just using the previous Section 194H, firms should apply the relevant new provision for current TDS returns.
What Counts as Commission or Brokerage?
Commission or brokerage generally covers payments made to a person acting on behalf of another person for specified services.
Common examples can include:
- Sales commission paid to an agent
- Brokerage for arranging business transactions
- Commission paid for buying or selling goods
- Dealer or intermediary commission
- Referral or agency commission where the arrangement falls within the definition
- Brokerage relating to eligible assets or transactions
Payment for services performed by someone acting on behalf of another person is generally covered by the law, with the exception of professional services. It also includes specific transactions involving assets, precious items, or things, as well as services related to purchasing or selling goods. Securities-related transactions are not included in the general commission/brokerage definition for this purpose, and insurance commission is handled separately. Therefore, rather than determining TDS only based on the payment’s name, the parties’ real agreement and relationship should be examined.
Who Has to Deduct TDS?
Companies, firms, LLPs and other covered entities generally need to examine this TDS requirement when paying commission or brokerage to a resident. Individuals and HUFs are treated differently. An individual or HUF generally falls within the normal commission/brokerage TDS provision where the turnover or gross receipts of the preceding year exceeded:
- ₹1 crore in case of business, or
- ₹50 lakh in case of profession.
Therefore, every individual who pays a small commission personally does not automatically become a regular Section 194H-type deductor. However, there is a separate provision for certain individuals and HUFs who are not regular TDS deductors but make very large payments. Where covered commission, brokerage, contractual or professional payments exceed ₹50 lakh in a year, a separate TDS requirement may apply.
What Is the TDS Threshold?
The current annual threshold for normal commission or brokerage TDS is ₹20,000. This means TDS is generally not required under this provision where the total commission or brokerage paid or credited to a particular resident during the year does not exceed ₹20,000. The threshold should be checked on an aggregate annual basis.
For example, suppose a business pays an agent:
- April – ₹8,000
- July – ₹7,000
- October – ₹10,000
The aggregate becomes ₹25,000. Even though each individual payment is below ₹20,000, the annual total crosses the prescribed threshold and the TDS requirement needs to be considered.
What Is the TDS Rate?
The current TDS rate on eligible commission or brokerage is 2%. For example, if eligible commission of ₹1,00,000 is payable:
TDS = ₹1,00,000 × 2% = ₹2,000
Subject to the invoice, GST, and other relevant factors, the agent would typically receive the remaining amount after TDS.Additionally, businesses should get the payee’s exact PAN. The applicable tax regulations may result in a higher TDS rate if proper PAN information is not provided.
When Should TDS Be Deducted?
TDS is generally deducted at the earlier of:
- Credit of commission or brokerage to the payee’s account, or
- Actual payment.
Let’s say a business records a ₹50,000 commission due to an agent on August 25 but transfers the funds on September 10.Since that event happened first, the TDS requirement usually arises when the sum is credited in August. Therefore, if the commission has already been credited in the books, businesses shouldn’t wait for the real bank payment.
When Does Section 194H Not Apply?
The normal commission/brokerage provision does not apply merely because a payment has been labelled “commission. ”Some situations need separate treatment. For example:
Insurance Commission: It is governed by a separate TDS provision.
Professional Fees: Payments to professionals may fall under the provision applicable to professional services rather than commission.
Transactions in Securities: These are excluded from the general definition of commission or brokerage for this provision.
BSNL/MTNL PCO Franchisee Commission: A specific exemption exists for qualifying commission or brokerage payable to public call office franchisees.
Therefore, the nature of the transaction is more important than the accounting name used in the ledger.
How Is Section 194H TDS Reported?
Tax deducted on commission or brokerage is submitted with the government within the statutory TDS schedules for regular business deductors. For non-salary payments, the transaction is typically recorded in the relevant quarterly TDS statement, and the deductee is given the relevant TDS certificate. TDS is typically deposited by the seventh of the subsequent month for the majority of non-government deductors. The deadline for taxes deducted in March is different. Before submitting, businesses should reconcile their quarterly return, Form 26AS-related data, commission ledger, and TDS payable account.
Common Section 194H Mistakes
Common compliance mistakes include:
- Using the old 5% TDS rate instead of the current 2% rate
- Checking each invoice separately instead of the annual ₹20,000 threshold
- Deducting TDS only when payment is made and ignoring an earlier credit
- Treating professional fees as normal brokerage
- Ignoring commission recorded as payable at year-end
- Using old Section 194H in a post-1 April 2026 TDS filing
- Entering an incorrect PAN
- Deducting TDS but depositing it late
Delayed deduction or deposit can lead to interest and other consequences, so TDS should be reviewed while booking the expense rather than only at year-end.
Conclusion
Although the 2026 compliance framework has modified its statutory reference, Section 194H is still a well-known term for companies that pay commission and brokerage. Regular commission and brokerage TDS are covered under Section 393(1), Table Sl. No. 1(ii) of the Income-tax Act, 2025, as of April 1, 2026.Three practical points that businesses should keep in mind are the ₹20,000 annual barrier, the 2% TDS rate, and the deduction at the earlier of credit or payment.
In order to ensure that commission and brokerage transactions are accurately reported under the existing tax system, Sharda Associates helps firms with TDS application checks, computations, quarterly TDS reports, reconciliation, and correction of TDS defaults. For just Rs 2999, you can get a CA-certified project report from Sharda Associates, which has over 45,500 successful reports in India. For knowledgeable guidance, give us a call at 8989977769.
Frequently Asked Question
Q1. What is the commission or brokerage TDS rate?
Subject to the relevant circumstances, the current TDS rate on qualified commission or brokerage payments to a resident is 2%. The Income-tax Act of 2025 will apply to the applicable provision as of April 1, 2026.
Q2. What is the commission or brokerage TDS threshold limit?
When the total commission or brokerage paid or credited to a certain resident throughout the fiscal year does not surpass ₹20,000, TDS is typically exempt. It is important to verify the entire total rather than just each individual payment.
Q3. After ₹20,000 is reached, is TDS deducted from the entire commission?
Indeed. TDS must be taken into account in accordance with the clause on the commission or brokerage amount covered by the law after the relevant yearly threshold has been exceeded. Therefore, rather of waiting until the end of the year, businesses should keep an eye on cumulative payments throughout the year
Q4. When should commission TDS be subtracted?
TDS is often subtracted at the time of actual payment or when the amount is credited to the payee. Therefore, the TDS liability may occur at the time of credit if commission is booked in the accounts prior to actual payment.
Q5. Does every person or HUF fall under the commission/brokerage TDS rule?
No, people and HUFs are typically only covered under the regular provision if they fulfilll the requirements for professional or business turnover. When an otherwise uncovered person or HUF makes specific contractual, professional, commission, or brokerage payments exceeding ₹50 lakh in a fiscal year, a different clause may be applicable.
Q6. Does Section 194H cover insurance commission?
No, a different TDS clause covers insurance commission. Therefore, before implementing the commission or brokerage TDS regulation, firms should determine the true nature of the payment.
Q7. Does TDS apply to securities brokerage?
Transactions involving securities are not included in this provision’s general definition of commission or brokerage. As a result, not all payments classified as brokerage automatically fit into this TDS category.
Q8. What occurs if commission or brokerage TDS is not timely deducted or deposited?
Depending on the circumstances and relevant laws, failing to deduct or deposit TDS within the allotted time may result in interest, late payment penalties, and possibly expense disallowance. Therefore, rather than just when filing the income-tax return, businesses should assess TDS at the time the commission charge is booked.