Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194H of the Income-tax Act governs TDS on commission or brokerage.
This guide sets out the TDS rate under Section 194H, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194H?
Section 194H covers TDS on commission or brokerage paid to a resident.
Rate, threshold and who deducts
| Nature of payment | Commission or brokerage |
|---|---|
| TDS rate | Standard rate is 5% (reduced to 2% from 1 October 2024 — verify the current-year rate) |
| Threshold | ₹15,000 in a financial year |
| Who deducts (deductor) | Person paying commission/brokerage (subject to audit) |
| Whose income (deductee) | Agent / broker |
| Time of deduction | At credit or payment, whichever is earlier |
Key points
- Insurance commission is covered separately under Section 194D.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on commission or brokerage at credit or payment, whichever is earlier.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194H appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Is turnover commission covered?
Commission or brokerage for services rendered (excluding professional services) is covered; verify the applicable rate for the year.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.