If your business pays commission to a broker, agent, distributor or referral partner, Section 194H decides whether you must deduct tax at source — and how much. The rules changed twice in two years: the rate was cut from 5% to 2% in October 2024, and the threshold was raised from Rs 15,000 to Rs 20,000 in April 2025. From 1 April 2026, the same provision lives under a new number, Section 393 of the Income Tax Act, 2025.
Quick answer: Section 194H (now Section 393(1), Table Serial No. 1(ii), from 1 April 2026) requires TDS at 2% on commission or brokerage paid to a resident who gives a valid PAN. No PAN means 20%. TDS applies only when the total commission paid to the same person in a financial year crosses Rs 20,000 — and once it does, tax is deducted on the whole amount, not just the part above Rs 20,000.
What is Section 194H?
Section 194H of the Income Tax Act, 1961 covers tax deducted at source (TDS) on commission or brokerage paid to a resident. It applies to any person who pays commission — companies, firms, LLPs, trusts and, in some cases, individuals and HUFs (see the deductor rules below).
The law defines commission or brokerage as any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (other than professional services), or for services in the course of buying or selling goods, or in relation to any transaction about an asset or valuable article other than securities.
The key word is agency. The payee must be acting on your behalf — bringing a deal together, finding a buyer, or procuring an order. If the payee is not acting as your agent, the payment is not commission under Section 194H, whatever the invoice calls it.
Examples of payments covered by Section 194H
| Example | What is being paid? | Why it falls under 194H |
|---|---|---|
| Real-estate broker | Fee for finding a buyer for a property | Agent brings buyer and seller together |
| Mutual-fund distributor | Commission for selling a scheme | Agent acts on behalf of the fund house |
| Loan DSA (direct selling agent) | Commission from a bank for sourcing loan customers | Agent procures business for the bank |
| Referral partner | Referral fee for introducing a new client | Brokerage for a sale |
A distributor who buys goods from you and resells them at a margin is not covered — that is a principal-to-principal sale, not agency. A trade discount is also not commission; it is a reduction in price.
What is the TDS rate under Section 194H?
| Situation | Rate before 1 Oct 2024 | Rate from 1 Oct 2024 |
|---|---|---|
| Payee gives a valid PAN | 5% | 2% |
| Payee does not give a PAN | 20% | 20% |
The 2% rate came from Budget 2024 (Finance Act 2024) and applies from 1 October 2024. The 20% no-PAN rate comes from Section 206AA (now Section 397(2) under the Income Tax Act, 2025) and has not changed. No surcharge or cess is added to the TDS rate — the 2% or 20% is the full rate.
If the payee holds a lower or nil TDS certificate under Section 197 from the tax department, the deductor must apply the rate written in that certificate instead of 2%.
What is the threshold limit for Section 194H?
TDS is required only when the total commission or brokerage paid or credited to one payee in a financial year crosses Rs 20,000. The limit was Rs 15,000 until 31 March 2025 and was raised to Rs 20,000 from 1 April 2025 by Budget 2025 (Finance Act 2025).
The whole-amount rule
When the limit is crossed, TDS is calculated on the entire amount, not just the part above Rs 20,000. This is the point most small businesses get wrong.
Worked example 1 — above the limit
- Total commission paid to Mr. A in FY 2025-26 = Rs 1,00,000
- Rs 1,00,000 is more than Rs 20,000, so TDS = 2% of Rs 1,00,000 = Rs 2,000
- Mr. A receives Rs 98,000 and claims the Rs 2,000 as tax credit in his return.
Worked example 2 — below the limit
- Total commission paid to Ms. B in FY 2025-26 = Rs 18,000
- Rs 18,000 is within Rs 20,000, so no TDS is deducted at all.
Worked example 3 — limit crossed mid-year
- First payment to Mr. C in June 2026: Rs 15,000 — no TDS, because the total so far is below Rs 20,000.
- Second payment in November 2026: Rs 10,000 — the yearly total is now Rs 25,000, above the limit.
- TDS is now deducted on the whole Rs 25,000: 2% = Rs 500, deducted at the time of the second payment.
The threshold is tested per payee, per financial year. Paying Rs 18,000 each to five different brokers means no TDS on any of them. Paying Rs 25,000 to one broker means TDS on the full Rs 25,000.
Who has to deduct TDS under Section 194H?
| Deductor | When must they deduct TDS? |
|---|---|
| Companies, firms, LLPs, trusts, societies, government bodies | Always, when they pay commission to a resident and the Rs 20,000 limit is crossed |
| Individuals and HUFs | Only if their business turnover in the previous financial year crossed Rs 1 crore, or their professional receipts crossed Rs 50 lakh |
So a salaried individual who pays a broker Rs 50,000 for finding a tenant does not deduct TDS. A business with Rs 2 crore turnover that pays the same broker must deduct 2%.
When is TDS deducted, deposited and reported?
When to deduct: at the earlier of the date the commission is credited to the payee’s account or the date it is actually paid. Crediting the amount in your books is enough to trigger the deduction — you cannot wait until you actually pay.
When to deposit: the deducted tax must be deposited with the government, usually by the 7th of the following month (30 April for tax deducted in March). Government deductors follow a different same-day rule.
How to report: the deductor files a quarterly TDS return in Form 140 (earlier Form 26Q) and issues a TDS certificate, Form 16A — called Form 131 under the Income Tax Act, 2025, from 1 April 2026 — to the payee. The same quarterly cycle applies to other TDS sections — TDS on rent under Section 194I and TDS on FD interest under Section 194A follow the same deposit and return calendar. The payee can see the credit in Form 26AS and the Annual Information Statement (AIS) on the e-filing portal, and claims it while filing the return.
If TDS is deducted late or not deposited on time, interest applies under Section 201(1A) — 1% per month for late deduction and 1.5% per month for late deposit. If TDS is not deducted at all, the deductor can also face a penalty and the expense may be disallowed in some cases.
What is NOT covered by Section 194H?
| Not covered | Where it belongs instead |
|---|---|
| Insurance commission | Section 194D |
| Commission on securities transactions | Excluded from the definition of commission under 194H — no TDS under this section |
| Professional fees (legal, accounting, consulting) | Section 194J |
| Salary or wages | Section 192 |
| Payments by BSNL/MTNL to their public call office franchisees | Specific exemption under 194H |
| Trade discount | Not a payment for agency — no TDS |
The Supreme Court has also held that cellular mobile service providers are not liable to deduct TDS on the income or profit part of payments received by their franchisees or distributors from third-party customers.
Section 194H vs 194J vs 194D: which section applies?
Mixing up these three sections is the most common error. The test is the nature of the payment, not what the invoice calls it.
| Feature | Section 194H | Section 194J | Section 194D |
|---|---|---|---|
| Type of payment | Commission or brokerage (agent acting on your behalf) | Fees for professional or technical services, royalty, non-compete fees, director remuneration | Insurance commission |
| Rate (with PAN) | 2% | 10% (professional services, royalty, non-compete, director fees); 2% (fees for technical services) | 2% for individuals/HUFs (from 1 Apr 2025); 10% for domestic companies |
| Rate (no PAN) | 20% | 20% | 20% |
| Threshold | Rs 20,000 per payee per FY | Rs 50,000 per category per payee per FY (raised from Rs 30,000 from 1 Apr 2025) | Rs 20,000 per agent per FY (raised from Rs 15,000 from 1 Apr 2025) |
| New number (from 1 Apr 2026) | Section 393(1), Table Sl. 1(ii) | Section 393(1) (professional fees, payment code 1027; technical fees, code 1026) | Section 393(1), Table Sl. 1(i) |
A lawyer’s fee for drafting a contract is 194J. A broker’s fee for finding the buyer is 194H. An insurance agent’s commission is 194D. Getting the section wrong means the wrong rate, the wrong threshold and the wrong reporting code.
What changed in 2025 and 2026?
| Change | When | What changed |
|---|---|---|
| Rate cut | 1 Oct 2024 (Budget 2024) | 194H rate fell from 5% to 2% for PAN holders |
| Threshold hike | 1 Apr 2025 (Budget 2025) | 194H limit rose from Rs 15,000 to Rs 20,000 per payee per year |
| Renumbering | 1 Apr 2026 (Income Tax Act, 2025) | Section 194H became Section 393(1), Table Serial No. 1(ii), payment code 1006 |
| Form change | 1 Apr 2026 | TDS reporting moved from Form 26Q to Form 140; the certificate moved from Form 16A to Form 131 |
| GST | Ongoing | GST shown separately on the invoice is excluded from the TDS base |
Watch out for old articles: several blogs still show the old 5% rate and the old Rs 15,000 limit. If a page quotes 5% for commission TDS, it has not been updated since October 2024.
By the numbers
- 2% — the TDS rate on commission and brokerage with PAN, down from 5% on 1 October 2024 (Finance Act 2024, per the Income Tax Department’s TDS rate chart).
- Rs 20,000 — the yearly threshold per payee, up from Rs 15,000 on 1 April 2025 (Finance Act 2025).
- Rs 1 crore / Rs 50 lakh — the previous-year turnover and professional-receipts tests that decide whether an individual or HUF must deduct TDS at all (Section 194H).
- 1006 — the payment code for commission or brokerage under Section 393(1), Table Serial No. 1(ii), of the Income Tax Act, 2025.
Common mistakes to avoid
- Deducting only the excess above Rs 20,000. Once the limit is crossed, TDS applies to the whole amount. On Rs 25,000 the TDS is Rs 500, not Rs 100.
- Deducting TDS on the GST-inclusive amount. If GST is shown separately on the invoice, deduct TDS only on the commission part. A Rs 1,00,000 commission plus Rs 18,000 GST means TDS on Rs 1,00,000, not Rs 1,18,000.
- Using Section 194J for a broker. A broker is not a professional service provider. 194J at 10% on a broker’s commission is a wrong deduction.
- Treating a trade discount as commission. A discount given on goods is a price cut, not a payment to an agent. No TDS applies.
- Skipping the individual/HUF turnover test. A small business below the Rs 1 crore turnover limit does not need to deduct TDS at all — but a growing business that crossed the limit last year must start deducting this year.
- Not issuing the TDS certificate. If the payee never gets Form 16A (now Form 131), they may still see the credit in Form 26AS, but the missing certificate causes disputes at return-filing time.
What should the agent or broker receiving commission do?
- Give your PAN to every payer and keep it updated. Without PAN, 20% is deducted instead of 2% — on Rs 1,00,000 of commission that is Rs 20,000 instead of Rs 2,000.
- Check Form 26AS and AIS on the e-filing portal every quarter to confirm the TDS has been credited to your PAN.
- Claim the TDS as a tax credit while filing your income tax return. TDS is not an extra tax — it is advance tax already paid on your behalf.
- Report the commission as business income if broking is your business, or under “Income from Other Sources” if it is an occasional receipt.
- Keep invoices that separate commission from GST, so the payer deducts TDS on the right amount.
- If your total income is below the taxable limit, apply for a lower or nil TDS certificate under Section 197 so the payer does not deduct tax you will only claim back as a refund later.
Frequently Asked Questions
What is the TDS rate under Section 194H?
If the payee gives a valid PAN, the rate is 2%. The rate was 5% until 30 September 2024 and was cut to 2% from 1 October 2024. If the payee does not give a PAN, the rate is 20% under Section 206AA (now Section 397(2)).
What is the threshold limit for Section 194H?
TDS is required only when the total commission or brokerage paid to one payee in a financial year crosses Rs 20,000. The limit was raised from Rs 15,000 from 1 April 2025. The threshold is tested per payee, per year — not per payment.
Who is required to deduct TDS under Section 194H?
Any person paying commission to a resident must deduct TDS, once the Rs 20,000 limit is crossed. Companies, firms, LLPs and trusts always deduct. Individuals and HUFs deduct only if their business turnover crossed Rs 1 crore or their professional receipts crossed Rs 50 lakh in the previous financial year.
When is TDS deducted — at payment or at credit?
TDS is deducted at the earlier of the date the commission is credited to the payee’s account or the date it is actually paid. Merely crediting the amount in the books is enough to trigger the deduction.
What is the difference between Section 194H and 194J?
Section 194H covers commission or brokerage — payment to an agent acting on your behalf, at 2% above Rs 20,000. Section 194J covers professional and technical fees — payment for a lawyer, consultant, accountant or engineer — at 10% (2% for technical services) above Rs 50,000 per category per payee.
Is TDS deducted on insurance commission under Section 194H?
No. Insurance commission is covered by Section 194D, not 194H. Under 194D the rate is 2% for individuals and HUFs from 1 April 2025 (10% for domestic companies), with a Rs 20,000 yearly threshold per agent.
Is TDS deducted if commission is below Rs 20,000?
No. If the total commission paid to a payee in the financial year is Rs 20,000 or less, no TDS is deducted. But remember the limit is on the yearly total — small monthly payments that add up past Rs 20,000 trigger TDS on the whole amount.
What happens if the payee does not give a PAN?
The deductor must apply the 20% rate under Section 206AA (now Section 397(2)). A lower-deduction certificate under Section 197 needs a valid PAN, so it does not help a payee who has not given one. On Rs 1,00,000 of commission, that is Rs 20,000 deducted instead of Rs 2,000.
Official Sources
- Income Tax Department, e-filing portal — https://www.incometax.gov.in/
- Income Tax Department, TDS rate chart and TDS provisions — https://incometaxindia.gov.in/
Reviewed by Asuthod Rathod, CA. Last updated: 7 November 2026.
Disclaimer: This article gives general information only. It is not tax advice. Tax rules change with every Budget, so check the e-filing portal or consult a Chartered Accountant for your specific case.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.