If you earn or pay commission or brokerage, you need to know about Section 194H of the Income Tax Act. It tells you when and how TDS (Tax Deducted at Source) should be deducted before making payments.
What is Section 194H?
- It applies when you pay commission or brokerage to a resident in India.
- TDS Rate: 10%
- Exemption Limit: No TDS if total payment in a year is ₹15,000 or less.
- Does not apply to payments made to non-residents.
Examples of Commission/Brokerage Covered
- Sales commission to agents
- Real estate brokerage
- Commission for financial services (e.g., loans, insurance)
- Advertising commission
When to Deduct TDS
You must deduct TDS at the time of credit to the payee’s account or at the time of payment—whichever is earlier.
Calculation Example
| Payment Type | Amount (₹) | Rate | TDS (₹) |
|---|---|---|---|
| Commission | 20,000 | 10% | 2,000 |
| Brokerage | 50,000 | 10% | 5,000 |
Due Dates for Compliance
| Task | Due Date |
|---|---|
| Deposit TDS to Govt. | 7th of next month |
| File TDS Return (Quarterly) | Last day of next month after quarter |
Penalties for Non-Compliance
- Interest on late payment of TDS
- Penalty equal to the TDS amount not deducted/paid
- Possible disallowance of expenses in income tax computation
Quick Tips
✅ Keep proper agreements and invoices for commission payments
✅ Track the ₹15,000 threshold for each payee per year
✅ File TDS returns on time to avoid penalties
FAQs on Section 194H
1. Is GST included when calculating TDS?
No, TDS is deducted on the commission amount excluding GST.
2. What if PAN is not provided?
TDS is deducted at a higher rate of 20%.
3. Do small businesses also have to deduct TDS?
Yes, if they are liable for tax audit in the previous year.
4. Can TDS be refunded?
Yes, the payee can claim it while filing their ITR.