Union Budget 2026 Updates
- TCS on overseas tour packages reduced to 2%, easing cash flow for travellers.
- TCS on education and medical expenses under LRS reduced to 2%.
- TDS on manpower supply services standardised at 1% or 2%, reducing confusion.
- For NRIs selling property in India, TDS will now be deposited using the buyer’s PAN instead of TAN, simplifying compliance.
Income Tax Act 2025 Update
- The Income Tax Act, 2025 have replaced the terms Previous Year & Assessment Year with the term Tax Year. For example, if the income was earned in the year 2025-26, it will be called Tax Year 2025-26. However, since many taxpayers are still familiar with the terms Financial Year (FY) and Assessment Year (AY), this guide continues to use them for easier understanding.
- The new Income Tax Act has renumbered most of the sections and simplified them by reducing the number of sections, schedules, etc.
You can refer to the complete section mapping of Income Tax Act 1961 vs Income Tax Act 2025 here.
What is Section 194H of Income Tax Act?
Section 194H of the Income Tax Act, 1961 governs TDS on commission and brokerage paid to residents. It applies when a person pays commission or brokerage income to an agent or intermediary for services rendered.
- TDS on commission rate / commission TDS rate / 194H TDS rate: 2%
- Commission TDS limit / brokerage TDS limit / TDS on commission limit: ₹20,000 per financial year
- TDS must be deducted before making payment or at the time of credit, whichever is earlier
When is TDS under Section 194H Applicable?
- All persons (except individuals/HUFs not covered under audit)
- Individuals and HUFs must also deduct TDS if they are liable for audit under Section 44AB (turnover > ₹1 crore or professional receipts > ₹50 lakh)
What is covered?
- TDS on commission and TDS on brokerage for services like sales facilitation, marketing, or agency work
What is not covered?
In short, TDS on commission and brokerage under Section 194H applies when payments exceed ₹20,000, and tax must be deducted at 2% by eligible payers.
Meaning of Commission & Brokerage Under Section 194H
To understand section 194H of Income Tax Act, you have to understand the basics of commission and brokerage. Any payment that is received or receivable, directly or indirectly, by any person acting on behalf of another person is said to be a commission or brokerage. It includes -
- Services rendered except professional services
- Services in the course of buying or selling goods
- Any transaction done for valuable assets or articles.
Tax deduction at source on brokerage or commission includes various services. These are as follows:
- Any service rendered except professional services
- Any service rendered in the process of selling or buying goods
- Any service that is given during any transaction related to any asset or any valuable thing excluding securities.
What are the Exemptions of TDS on Commission or Brokerage?
There are a few types of commissions or brokerage on which no tax deduction at the source is made under this section. They are -
- Commission paid to insurance or loan underwriters,
- Any brokerage paid for the public issue of securities,
- Any sort of brokerage paid on the transactions of securities that are listed in the stock exchange,
- Payments made by RBI to banking companies,
- Payment as an income tax refund,
- Payments towards Financial Corporations under the central finance bill,
- Any payments towards LIC policies or other investments in any cooperative societies,
- Payment of direct taxes,
- Income from interest from the savings bank account, recurring deposits, Indra Vikas Patra, NSC or Kisan Vikas Patra,
- Interest from NRE account,
- Any payment in respect of commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees,
- Any income from a public or private institution that is notified as NIL TDS organization.
- Any income from interest for the compensation in respect to Motor Vehicles Claims Tribunal.
When to Deduct TDS on Commission Under Section 194H?
Whenever there is a credit of income related to brokerage or commission to the account of the payee or any other account, tax deduction at source will be done under section 194H of the Income Tax Act 1961. Even if these incomes are accounted in suspense accounts or by another name at the time of payment that is made in cash or by cheque or draft, tax deduction at source (TDS) is done under section 194H.
What is the Time Limit for Depositing TDS?
Generally, the TDS deductors are required to deposit the TDS amount with the Income Tax Department by the 7th day of the month following the month in which the deduction was made. For example, the TDS deducted in the month of June must be deposited with the Income Tax Department by the 7th of the next month, i.e., the 7th of July. However, the tax deducted in March should be deposited with the government by 30th April.
| Quarter |
Period Covered |
Due Date |
| Q4 |
January - March 2026 |
On or before 31 May 2026 |
| Q1 |
April – June 2026 |
On or before 31 July 2026 |
| Q2 |
July – September 2026 |
On or before 31 October 2026 |
| Q3 |
October – December 2026 |
On or before 31 January 2027 |
| Q4 |
January – March 2027 |
On or before 31 May 2027 |
Monthly TDS Deposit Due Dates
| Period |
Due Date |
| April 2026 – February 2027 |
On or before the 7th of the following month |
| March 2027 |
On or before 30 April 2027 |
What is Section 194H TDS Rate?
Section 194H TDS on commission rate is fixed at the rate of 2% If in case the PAN is not quoted by the deductee, the rate of tax deduction at source (TDS) will be charged at 20%, with a cut off limit of Rs.20,000.
The summary is as under:
| Period |
TDS Rate |
| Before 01/10/2024 |
5% |
| On or after 01/10/2024 |
2% |
| If PAN is not provided |
20% |
Threshold Limit: Latest Update
Additionally, effective from 1st April 2025, the threshold limit of TDS on Brokerage & Commission earned by any person has been increased.
| Period |
Threshold Limit |
| Before 01/04/2025 |
₹ 15000 |
| On or after 01/04/2025 |
₹ 20000 |
Cases Where TDS is Not Applicable
- No TDS is required if the total brokerage or commission does not exceed ₹20,000 in a financial year.
- Commission or brokerage paid by Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL) to their Public Call Office (PCO) franchisees is not subject to TDS.
- When an employer pays commission to an employee, TDS is deducted under Section 192 of the Income Tax Act.
- No TDS applies to brokerage or commission on securities transactions.
- No TDS applies to brokerage or commission related to professional services.
- Commission earned from insurance income and loan underwriting is not covered for TDS under this section.
- A person can apply to the Assessing Officer under Section 197 for deduction of tax at a nil or lower rate.
- Payments made by television channels or newspaper companies to advertising agencies for booking, procuring, or canvassing advertisements are not liable for TDS.
- Turnover commission paid by the RBI to agency banks is not subject to TDS.
- No TDS is deducted on interest accrued on NRE accounts.
- Interest earned on savings bank deposits, NSC, Indira Vikas Patra, and Kisan Vikas Patra is not subject to TDS.
Conditions for Lower Rate TDS Deductions
The deductee, i.e., the person whose tax is being deducted, can apply to the Assessing Officer under Section 197 to obtain permission for deduction of TDS at a lower rate or nil rate.
Before accepting a Section 197 certificate, verify the deductee’s PAN carefully. Ensure that the certificate is valid for the relevant PAN, applicable section, prescribed TDS rate, and the financial year mentioned in the TDS return.
You should also check that the payment amount has not crossed the threshold limit specified in the certificate in earlier quarters. In addition, mention the correct certificate number in the TDS statement.
Key Points to Consider in Section 194H
Section 194H of the Income Tax Act in India deals with the deduction of tax at source (TDS) rate on commission or brokerage payments. If you are a payer responsible for making commission or brokerage payments to a resident, here are the important points to consider under Section 194H:
Applicability:
Section 194H TDS rate applies to all individuals, firms, companies, or any other entity that makes commission or brokerage payments to a resident payee.
Nature of Payment:
TDS under Section 194H of the Income Tax Act is applicable to payments made in the form of commission or brokerage.
Threshold Limit:
The TDS provisions of Section 194H are applicable only if the commission or brokerage payment to the payee exceeds ₹20,000 in aggregate during the financial year. If the total payment does not cross this threshold, no TDS needs to be deducted.
TDS Rate:
The TDS rate on commission under Section 194H of the Income Tax Act is 2% of the commission or brokerage amount. This rate is subject to change as per the prevailing tax laws.
Time of Deduction and Deposit:
TDS must be deducted at the time of credit of the commission or brokerage amount to the payee's account or at the time of payment, whichever is earlier. The deducted TDS must be deposited with the government within the specified due dates.
TDS Certificate:
The payer is required to issue a TDS certificate (Form 16A) to the payee, which includes details of the TDS deducted. This certificate serves as proof of TDS deduction and is essential for the payee while filing their income tax return.
TDS Return Filing:
The payer is required to file a TDS return (Form 26Q) on a quarterly basis, providing details of TDS deducted and deposited during the respective quarter.
If the payee believes that their total income is below the taxable limit and they are not liable to pay taxes, they can submit Form 15G (for individuals) or Form 15H (for senior citizens) to the payer. If the conditions are met, the payer will not deduct TDS on the commission or brokerage payments.
Valid PAN:
It is essential to ensure that the payee's PAN (Permanent Account Number) is correctly obtained and quoted for TDS purposes. Non-quoting or incorrect quoting of PAN may result in higher TDS deductions.
Timely Compliance:
Adhering to the TDS deduction and deposit timelines is crucial to avoid any penalties or interest for late payment.
