TDS Under Section 194H

Section 194H of the Income-tax Act requires every person — other than individuals and HUFs below the tax audit threshold — to deduct TDS at 5% on payments of commission or brokerage to a resident, where the aggregate during the year exceeds the notified threshold. The deduction must be made at the time of credit or payment, whichever is earlier. Insurance commission is covered under Section 194D, and trade discounts that pass title in goods are outside Section 194H. The deductor files Form 26Q quarterly and issues Form 16A.

Mayank Wadhera

Published: 30 Jun 2022

Updated: 16 May 2026

4 min read

Section 194H of the Income-tax Act, 1961 governs the deduction of TDS on commission and brokerage payments. From distributor margins in FMCG to insurance commissions and digital marketplace incentives, this section touches a vast portion of B2B and B2C commerce in India. With the Finance Act 2026 retaining the broadened framework and aligning thresholds with other TDS sections, every business making commission payments must apply Section 194H carefully in FY 2026-27.

Who must deduct TDS under Section 194H

Every person, other than an individual or HUF, responsible for paying commission or brokerage to a resident is required to deduct TDS under Section 194H. Individuals and HUFs are covered only if their total sales, gross receipts or turnover exceeded the threshold for tax audit in the immediately preceding financial year.

Definition of commission or brokerage

The Explanation to Section 194H defines commission or brokerage broadly as any payment received or receivable, directly or indirectly, by a person acting on behalf of another for:

Services rendered (not being professional services)
Any services in the course of buying or selling of goods
In relation to any transaction relating to any asset, valuable article or thing

Payments to insurance agents are specifically excluded from Section 194H — they are covered under Section 194D. Similarly, securities transactions through stock exchanges have their own framework. Trade discounts that pass title in goods (not commissions on behalf of a principal) are also outside the scope, as repeatedly upheld by courts.

Rate and threshold

Rate of TDS: 5% on commission or brokerage
If the payee does not furnish a PAN, the rate increases to 20% under Section 206AA
Threshold: TDS applies only if the aggregate amount paid or credited to the payee during the financial year exceeds the threshold notified — currently ₹15,000, subject to changes under the Finance Act in force
No surcharge or health and education cess is added to the basic rate for resident payees

Time of deduction

TDS must be deducted at the earlier of:

The time of credit of such income to the account of the payee, including credit to a Suspense Account or any other named account
The time of actual payment, in cash, by cheque, draft or any other mode

Common situations and pitfalls

Telecom distributor margins — Supreme Court treats them as commission attracting Section 194H
Payment gateway charges — typically commission unless structured purely as a fee for technical services
Travel agent commissions — covered, even when adjusted against amounts collected from passengers
Online marketplace incentives — careful analysis of agency vs. principal relationship is needed
Bank guarantee commission — exempt as it is a fee for use of credit, not commission for services

Compliance and certificate

The deductor must deposit TDS by the 7th of the following month (30th April for March), file quarterly Form 26Q, and issue Form 16A to the payee within 15 days of the due date for filing the quarterly statement. Mismatch between books and the AIS / TIS of the payee is a common cause of notices, so reconciliation is essential.

Documentation playbook for Section 194H

Building a sound documentation playbook protects both the deductor and the deductee. Every commission arrangement should be reduced to writing through a formal agreement that clearly distinguishes commission from discount and from fees for technical services. The agreement should specify the basis of calculation, the payment cycle, the GST treatment and the TDS rate.

Master commission agreement with each agent or broker, signed and dated
Monthly commission statement showing computation, gross amount and TDS deducted
Bank advice showing net payment reconciling to the statement
Form 16A issued quarterly within 15 days of due date
Reconciliation of total commission with Form 26AS / AIS of the payee

When commission spans multiple intermediaries — for example, a master distributor and sub-distributors — the documentation must establish each contractual relationship separately. Loose arrangements where commission is netted off against discounts often draw notices, because the system reads the same payment differently depending on classification.

Conclusion

Section 194H is among the most frequently invoked TDS sections because commission and brokerage flow through countless business arrangements. Sharp classification — commission vs. discount vs. fees for technical services — and clean documentation are the keys to avoiding short-deduction notices and protecting business expense deductions in FY 2026-27.

Frequently Asked Questions

Who must deduct TDS under Section 194H?

Every person, except an individual or HUF below the tax audit threshold of the previous financial year, must deduct TDS under Section 194H on commission or brokerage paid to a resident. Individuals and HUFs cross the threshold are also liable.

What is the rate of TDS under Section 194H?

TDS under Section 194H is currently deducted at 5% of the commission or brokerage paid. If the payee does not furnish a PAN, the rate rises to 20% under Section 206AA. No surcharge or cess is added for resident payees.

Are insurance commissions covered under Section 194H?

No. Insurance commission is specifically excluded from Section 194H and is governed by Section 194D, which has its own rate and threshold. Section 194H covers other commission and brokerage payments to residents.

Is a trade discount on goods covered under Section 194H?

Generally no. Courts have held that where the buyer takes title in goods and resells them, the margin is a trade discount, not commission. Section 194H applies only where the recipient acts on behalf of the principal under an agency arrangement.