TDS on commission and brokerage (Section 194H): 2% rate and ₹20,000 limit

Section 194H of the 1961 Act requires TDS on commission (not being insurance commission) or brokerage paid to a resident. Under the Income-tax Act, 2025, it is an entry in Section 393(1) from 1 April 2026.

What is commission or brokerage

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 buying or selling goods, or in relation to any transaction relating to an asset, valuable article or thing (other than securities).

Typical examples:

• Sales agents' commission;
• Property brokerage paid by businesses;
• Commission to travel agents (by airlines, where applicable);
• Collection agents' commission;
• Commission paid by banks to business correspondents;
• Commission to distributors acting as agents.

Rates and threshold

Exclusions

• Insurance commission (separate provision).
• Commission or brokerage on securities transactions.
• Commission paid by BSNL/MTNL to public call office franchisees (as earlier excluded).
• Professional services (fall under 194J).

Discount or commission?

The key test is the relationship:

Courts have decided cases both ways – for example, prepaid SIM card margins to distributors (disputed between principal-agent and sale). Read the agreement and the actual conduct.

Worked example 1: sales agent

Example: Gupta Textiles, a firm in Karol Bagh with turnover of ₹6 crore, appoints an agent in Ludhiana who earns 3% commission on orders procured. Commission for the year is ₹1,80,000.

• Threshold ₹20,000 crossed.
• TDS = 2% × ₹1,80,000 = ₹3,600 across the year.
• Commission is credited monthly; TDS is deducted on each credit once the aggregate is expected to exceed ₹20,000 (prudent practice is to deduct from the first credit if the annual total will clearly cross the limit).

Worked example 2: property brokerage

Example: A company in Rohini pays a broker ₹1,50,000 for finding an office on lease. TDS at 2% = ₹3,000. If an individual (not liable to audit) pays brokerage for renting his own house, no TDS applies.

Worked example 3: year-end provision

Example: On 31 March 2027, a company provides for commission of ₹40,000 to an agent, crediting "Commission payable – agent". TDS must be deducted at the time of credit, even though payment happens in May 2027. TDS deducted in March is deposited by 30 April 2027.

Consequences of default

• Interest 1% per month for non-deduction and 1.5% per month for late deposit.
• 30% of commission expense disallowed until TDS is deposited.
• Late fee and penalty for statements.

Old vs new references

Cite Section 194H for payments up to 31 March 2026 and the Section 393(1) commission entry thereafter. Update your software masters and agent agreements. See the TDS rate finder.

Linked provisions

• Business benefits given to agents (trips, gifts) may attract TDS under the business perquisites entry (old 194R) – see 194R guide.
• E-commerce operators deduct 0.1% under the e-commerce entry (old 194O); 194H does not apply to the same amount.

Common mistakes

• Using the old 5% rate or ₹15,000 threshold.
• Treating agency margins as trade discounts without examining the agreement.
• Missing TDS on year-end provisions.
• Deducting 194H on insurance commission.

Key takeaway

Commission and brokerage attract 2% TDS above ₹20,000 a year. Examine distributor agreements to distinguish discount from commission, and deduct on credit, including year-end provisions. Our TDS compliance team can review your agent and distributor arrangements.