What is TDS Rate on Commission and Brokerage Under Section 194H

Section 194H of the Income Tax Act deals with TDS on Commission and Brokerage. At the core of this provision is the fact that every commission, whether it be paid to an agent for securing sales or to a broker for securing deals, has a layer of compliance. The beauty of this law is that it makes the law very clear, any commission amount in excess of the prescribed amount TDS on commission rate is liable to be subject to deduction of tax at the notified TDS rate.

However, organisations and individuals still get confused when it comes to the understanding of the details of TDS on commission and brokerage under Section 194H, and we will be discussing the same in this blog, so that everything gets clear to you. 

What is Section 194H?

Section 194H of the Income Tax Act determines that the tax deduction at source (TDS) on payments in the form of commission or brokerage at 2%. It is an establishment that aims to ensure that the tax is paid on these incomes beforehand rather than waiting for year-end tax returns.

Who deducts TDS?

Individuals or Hindu Undivided Families (unless their turnovers exceed certain limits) that pay a commission or brokerage to a resident are liable to deduct TDS before paying the final amount. 

What is the Meaning of Commission and Brokerage under Section 194H?

The terms “commission” and “brokerage” are broad under section 194H. It includes:

• Payments to an agent for services (like closing a deal).

• Payments for any services in the course of buying or selling goods.

• Payments connected to transactions in assets, valuables, or things of value.

To put it simply, when an amount of money is against a service that causes profit, it is most likely commission or brokerage. 

TDS may apply in the following cases: 

• A real estate broker is getting you a flat.
• A marketing agent who finds clients for your company or is just a middleman who puts suppliers with buyers together.

Important note: When it is a part of an employer-employee relationship (e.g. a sales executive on payroll), it does not qualify as commission under this section. That falls under salary.

Exemptions of TDS on Commission or Brokerage under Section 194H of the Income Tax Act

Not every commission or brokerage payment attracts TDS. Here are the key exemptions:

• Threshold Limit: No TDS is deducted, provided that the total commission or brokerage paid to an individual in a financial year does not exceed ₹20,000. This increase and new limit came into effect on April 1, 2025.

• Insurance Commission: The insurance agent’s insurance commission is subject to a separate section (Section 194D); therefore, no TDS under 194H in this case.

• Exception of Individual/HUF: When the business turnover of an individual or an HUF does not exceed ₹1 crore (or professional fees ₹50 lakh) in the last year, the individual is not supposed to deduct TDS, even when the payment of the individual crosses the limit.

• Non-Resident Payments: Payments to non-residents are not subject to TDS; the section 194H is exclusively concerned with payments to Indian residents.

Inclusions of TDS on Commission or Brokerage under Section 194H of the Income Tax Act

It’s good to know which payments are included for TDS under this section:

• Sales and Purchase Commissions: Each time a dealer, agent or broker assists in closing a sale or purchase transaction and gets a cash reward as a result.

• Referral Payments: When one gives you a lead on business and you make a payment to him or her on the referral, that is commission.

• Service-Based Commissions: Commissions to the travel agents, recruitment consultants, the distribution channel partners or some other professionals.

• Stock and Commodity Brokerage: Every brokerage charges for the purchase, sale, or trade of shares, securities or any other assets on behalf of clients.

• Multi-Level Marketing (MLM) Payouts: Commission to the network marketers to facilitate the sale of products.

• Introductory Fees: If a fee charged in the introduction of a new client may be counted as commission in the case of TDS.

Due Date to Deposit TDS on Commission or Brokerage

Once TDS is deducted from commission or brokerage, there’s a deadline for depositing that amount with the government and filing the return. 

Quarter	TDS Statement/Return Filing Due Date Form-26Q
1st Quarter (April to Jun)	On or Before 31st July 2025
2nd Quarter (July to September)	On or Before 31st October 2025
3rd Quarter (October to December)	On or Before 31st January 2026
4th Qtr. (January to March)	On or Before 31st May 2026

Months	Due Date for TDS deposit
April-2025 to Feb-2026	On or before the 7th of next month
March-2026	On or Before the 30th April 2026

If you fail to comply with the deadlines, you may invite penalties, interest charges, and more paperwork.

TDS Rate on Commission or Brokerage

As of FY 2025-26, the TDS rate on commission or brokerage under Section 194H is:

• 2% (if PAN of the payee is available).

• 20% (if PAN is not furnished).

Real-life example: You owe an agent ₹1,00,000 in commission. In case they give their PAN, then you deduct ₹2000 (2%) and give them ₹98000. If they don’t provide a PAN, then you deduct ₹20,000 (20%).

Summing Up 

Whether you are a business that pays commission or an individual whose source of income is commissions, knowing the TDS rate on a commission, the TDS limit on commission and the due dates will relieve you of last-minute tax filing panic. 

If managing business compliance is getting difficult for you, we encourage you to sign up for Munim GST Return Filing software for accurate and timely filing. Sign up now and save thousands of rupees in penalties. 

Frequently Asked Questions 

How much TDS is deducted from the commission?​

The TDS rate on commission under Section 194H of the Income Tax Act is:

• 2% if the payee provides their PAN.

• 20% if the payee does not provide their PAN.

How to calculate TDS on commission​?

To calculate TDS on commission, follow these steps:

Step 1: Identify the commission amount

Step 2: Check if PAN is available

Step 3: Calculate the TDS:

• If PAN is provided, 2% of ₹1,00,000 = ₹2,000.

• If PAN is not provided, 20% of ₹1,00,000 = ₹20,000.

Step 4: Deduct the calculated TDS from the commission or brokerage and pay the balance to the payee.

Who is liable to deduct TDS on commission​?

The person or business paying the commission is responsible for deducting TDS.

What is the percentage of TDS on commission​?

The TDS percentage on commission is:

• 2% when the payee has provided their PAN.

• 20% if the payee has not provided their PAN.

About the author