Section 194H: TDS on Commission & Brokerage 2026
Section 194H of the Income-tax Act, 1961 governs the deduction of tax at source (TDS) on payments in the nature of commission or brokerage made to residents. Businesses that engage agents, distributors, dealers or intermediaries need to understand when this deduction applies, at what rate, and by when the tax must be deposited. This article sets out the position for 2026, covering the current rate, the revised threshold, the persons responsible for deduction and the payments that fall outside the section.
What Section 194H covers
Section 194H requires any person paying commission or brokerage to a resident to deduct tax at source before releasing the payment. For this purpose, commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another for services rendered (other than professional services), or for any services in the course of buying or selling goods, or in relation to any transaction concerning any asset, valuable article or thing (excluding securities).
The scope is deliberately wide. Typical payments that attract Section 194H include commission to sales agents, brokerage to property or commodity brokers, target incentives paid to distributors and dealers, and referral or intermediary charges. What matters is the substance of the payment, not the label used in the invoice or agreement.
Section 194H rate and threshold: which one applies to your payment
The rate and the threshold under Section 194H have both changed in the last two years, and they changed on different dates. That is why a commission paid in September 2024 and one paid in November 2024 carry different rates, and why a return being corrected today may need an older rate rather than the current one.
| Commission or brokerage credited / paid | TDS rate | Threshold (per payee, per financial year) |
|---|---|---|
| Up to 30 September 2024 | 5% | Rs. 15,000 |
| 1 October 2024 to 31 March 2025 | 2% | Rs. 15,000 |
| 1 April 2025 onwards — covers FY 2025-26 and FY 2026-27 | 2% | Rs. 20,000 |
| Payee has not furnished a valid PAN (any period) | 20% | Threshold still applies |
The rate cut from 5% to 2% took effect on 1 October 2024 (Budget 2024). The threshold rose from Rs. 15,000 to Rs. 20,000 on 1 April 2025 (Budget 2025). Sources: ClearTax, TDSMAN.
Which date decides the rate
TDS under Section 194H is triggered on credit to the payee’s account or actual payment, whichever is earlier. So the governing date is not the invoice date and not the date you cleared the bank entry — it is whichever of credit or payment came first. A commission provided for on 28 September 2024 and paid in November 2024 was deductible at 5%, because the credit came first.
The threshold is per payee, per financial year
The Rs. 20,000 limit applies to the aggregate of commission or brokerage credited or paid to one payee during the financial year — not per bill. Once the running total for that payee crosses Rs. 20,000, tax is deductible on the whole amount for the year, including the earlier payments that individually fell below the limit. This is the single most common 194H error we see: deductors treat each invoice separately, cross the limit in month eight, and then have a short-deduction default on months one to seven.
If you are correcting an earlier return
When a TDS return for FY 2024-25 is being revised, the rate must match the period of credit, not today’s rate. Filing the whole year at 2% when part of it fell before 1 October 2024 produces a short-deduction demand; filing the whole year at 5% produces an excess that has to be claimed back through the payee. Check the credit dates against the table above before you file the correction statement.
TDS rate under Section 194H in 2026
The rate of TDS on commission and brokerage is 2 per cent. This is a reduced rate: prior to 1 October 2024 the rate was 5 per cent, and the change to 2 per cent took effect from that date. The 2 per cent rate continues to apply through the financial year 2026-27.
- Standard rate where the payee furnishes a valid PAN: 2 per cent.
- Rate where the payee does not furnish a PAN: 20 per cent, under Section 206AA.
- No surcharge or health and education cess is added when the payee is a resident; tax is deducted at the flat rate.
The deduction is made on the amount of commission or brokerage, exclusive of Goods and Services Tax where the GST component is shown separately in the invoice.
Threshold limit for deduction
No TDS is required under Section 194H where the aggregate amount of commission or brokerage credited or paid to a payee during a financial year does not exceed the threshold. With effect from financial year 2025-26, this threshold has been raised to Rs 20,000 per year. For periods up to 31 March 2025 the threshold was Rs 15,000.
The limit applies to the total for the year, not to each individual payment. Once cumulative commission or brokerage to a single payee crosses Rs 20,000 in the year, tax must be deducted on the full amount, including the portion paid earlier before the threshold was breached.
Who must deduct TDS under Section 194H
Every person making a payment of commission or brokerage is, as a rule, required to deduct tax under this section. However, individuals and Hindu Undivided Families (HUFs) are liable to deduct only if they were subject to tax audit in the immediately preceding financial year. In practical terms, an individual or HUF must deduct where, in the preceding year, business turnover exceeded Rs 1 crore or gross receipts from a profession exceeded Rs 50 lakh.
- Companies, firms, LLPs, trusts and other entities: always required to deduct, regardless of turnover.
- Individuals and HUFs: required to deduct only if covered by tax audit in the preceding year.
- Salaried individuals or small proprietors below the audit limit: generally outside the scope of Section 194H.
The deductor must hold a valid Tax Deduction and Collection Account Number (TAN) and quote it in all challans, returns and certificates. Tax is to be deducted at the time of credit to the account of the payee or at the time of payment, whichever is earlier, including a credit to a suspense or any other account in the books.
Payments excluded from Section 194H
Certain payments that may resemble commission are dealt with under other provisions or are specifically kept out of Section 194H. The main exclusions are as follows.
- Insurance commission, which is covered separately under Section 194D and not under Section 194H.
- Brokerage in relation to securities, which is outside the definition of commission or brokerage for this section.
- Commission or brokerage payable by BSNL or MTNL to their public call office franchisees.
- Payments in the nature of professional fees, which fall under Section 194J rather than Section 194H.
Where a payment is genuinely a discount, a principal-to-principal margin, or a purchase and resale spread rather than an agency commission, Section 194H may not apply. This is a fact-specific question and should be examined against the terms of the underlying arrangement.
Deposit and return filing timelines
After deduction, the tax must be deposited with the Central Government and reported through quarterly TDS statements. Missing these dates attracts interest and, in some cases, late-filing fees.
- Monthly deposit: on or before the 7th of the following month for deductions made in April through February.
- March deductions: on or before 30 April.
- Quarterly return in Form 26Q: 31 July (Q1), 31 October (Q2), 31 January (Q3) and 31 May (Q4).
- TDS certificate in Form 16A: to be issued to the payee within 15 days of the due date for filing the relevant quarterly return.
Interest at 1 per cent per month applies for delay in deduction and 1.5 per cent per month for delay in deposit after deduction. A late-filing fee under Section 234E of Rs 200 per day may also apply for delayed returns, subject to the amount of tax deductible.
Consequences of non-compliance
Failure to deduct or deposit TDS can lead to disallowance of the related expenditure. Under Section 40(a)(ia), 30 per cent of the commission or brokerage expense may be disallowed while computing business income if tax is not deducted or, having been deducted, is not paid within the prescribed time. The deductor may also be treated as an assessee in default and face interest and penalty. Maintaining an accurate register of payees, thresholds and deduction dates is the simplest way to stay compliant. For a fuller checklist, see our guidance on TDS compliance.
Frequently asked questions
Is TDS on commission deducted inclusive of GST?
No. Where the GST on the commission or brokerage is shown separately in the invoice, tax under Section 194H is deducted only on the commission amount and not on the GST component.
Does Section 194H apply to a salaried person paying a broker?
Generally not. An individual or HUF is required to deduct under Section 194H only if they were liable to tax audit in the preceding financial year. A salaried person or small proprietor below the audit thresholds is not obliged to deduct.
What is the threshold for FY 2026-27?
The threshold is Rs 20,000 of aggregate commission or brokerage to a single payee during the financial year. This revised limit, effective from FY 2025-26, continues to apply. No deduction is required until the yearly total crosses Rs 20,000.
What happens if the agent does not provide a PAN?
If the payee fails to furnish a valid PAN, tax must be deducted at the higher rate of 20 per cent under Section 206AA instead of the standard 2 per cent.
Is insurance commission covered under Section 194H?
No. Insurance commission is dealt with separately under Section 194D and is specifically excluded from Section 194H.
If your business pays commission or brokerage and you would like help getting the deduction rate, thresholds, deposits and returns right, TAXAJ can manage your end-to-end TDS and TAN compliance so you meet every deadline with confidence. Reach out to our team to review your current process and put a reliable system in place.
