Section 194H: A Complete Guide to TDS on Commission or Brokerage in 2025

Section 194H of the Income Tax Act is a crucial provision that mandates the deduction of tax at source (TDS) on income received as commission or brokerage. For professionals, businesses, and financial advisors dealing in commissions, understanding Section 194H is vital to ensure compliance and avoid tax penalties in 2025.

What is Section 194H?

Section 194H highlights the rules for TDS deduction on payments classified as commission or brokerage (excluding insurance commission, which falls under Section 194D). The law applies to both individuals and entities making such payments, provided they cross specified monetary thresholds in a financial year.

The essence of Section 194H is simple. Whenever a business or individual pays commission or brokerage to a resident, they must deduct tax at a prescribed rate before making the payment. This collected TDS is then deposited with the government.

Did you know? Many small businesses mistakenly ignore Section 194H, thinking it applies only to large firms. However, payment thresholds have reduced over the years, making this compliance important even for MSMEs and online service providers in 2025.

Why is Section 194H Relevant in 2025?

Compliance with Section 194H is more significant now than ever before. With the rapid growth of digital platforms, online marketplaces, and aggregators, transactions involving commissions and brokerages have grown manifold. Whether it’s an app-based real estate agent, e-commerce affiliate, or gig economy worker, Section 194H often becomes applicable.

Several recent government initiatives and GST alignments mean stricter scrutiny of TDS filings. Integrating TDS data across systems helps keep track of evasion and non-compliance.

Key features or highlights of Section 194H in 2025:

• Lower threshold limits: As per the latest finance amendments, TDS under Section 194H is required if the payment exceeds ₹15,000 in a financial year.
• Updated rate: The standard TDS rate remains at 5 percent, but reductions may be notified for certain digital transactions or small startups.
• PAN requirement: Non-compliance or absence of PAN from the payee results in higher TDS deduction.
• Timely deposit: TDS deducted must be deposited to the government by the 7th of the subsequent month, with quarterly TDS returns filed as specified.

Who Should Deduct TDS Under Section 194H?

Is Section 194H applicable to individuals, firms, or companies?

Any person, other than an individual or Hindu Undivided Family (HUF) not subject to tax audit in the previous financial year, who pays commission or brokerage to a resident exceeding ₹15,000 in aggregate is required to deduct TDS under Section 194H. In simple terms:

• Businesses and firms with sales or turnover crossing ₹1 crore (for business) or ₹50 lakh (for professionals) in the preceding financial year must deduct TDS.
• Governments, companies, partnerships, LLPs, partnerships, and trust are generally required to deduct TDS if they make such payments.

Expert insight: In my CA practice, I often advise startups on TDS compliance for influencer marketing campaigns, where online platforms pay commissions or referral fees. Even if you operate solely via digital channels or online marketing, Section 194H applies when payouts exceed the threshold.

What types of payments fall under ‘commission or brokerage’ for Section 194H?

Section 194H defines commission or brokerage broadly. It includes any payment received for:

• Facilitating the sale or purchase of goods.
• Arrangement of services.
• Acting as an intermediary, including referral fees and finders’ fees.

Excluded from Section 194H are:

• Insurance commission (falls under Section 194D).
• Transactions in securities.

Example:

• An e-commerce aggregator pays a food delivery platform commission for every order delivered. This payment is subject to 194H.
• An offline distributor receives a percentage of product sales as a commission from the manufacturer, which is also covered.

People Also Ask

Q: Is GST included while calculating TDS under Section 194H?

No, if GST is mentioned separately in the invoice, TDS is deducted only on the base commission amount, not on GST.

How to Deduct and Deposit TDS Under Section 194H?

What is the process for TDS deduction under Section 194H?

Deducting and depositing TDS is a systematic process:

1. Deduct TDS: When making payment or crediting commission to the payee’s account (whichever is earlier), deduct 5 percent of the commission.
2. Deposit TDS: Pay the deducted TDS to the Central Government by the 7th of the following month.
3. TDS Certificates: Provide the deducted party (payee) with a TDS Certificate (Form 16A) showing details of the TDS.
4. Quarterly Returns: Submit TDS returns under Form 26Q every quarter.

Did you know? Failing to deposit TDS in time attracts interest under Section 201 and heavy penalties, which gets flagged in routine income tax audits.

First-Hand Experience: TDS on Brokerage in Online Businesses

As a consultant for multiple fintech startups and digital service agencies, I’ve witnessed that digital bookkeeping platforms and online marketplaces automate TDS deductions these days. This not only reduces human error but also ensures on-time deposit and compliance. One tech platform I supported integrated TDS calculation into their vendor payout cycle, ensuring every affiliate’s commission defaults through 194H checks.

A common challenge faced is that third-party partners or freelancers often lack awareness of TDS deductions or neglect to update their PAN details, leading to excess deduction at 20 percent rather than 5 percent. Outreach and education on compliance can minimize such issues, while automated reporting tools help track deduction status for every transaction.

People Also Ask

Q: Can self-employed professionals receive commission without attracting 194H TDS?

No, if they act as agents or intermediaries and receive commission over the specified limit, Section 194H is mandatorily applicable.

Pros and Cons of Section 194H Compliance

What are the advantages and disadvantages of Section 194H for businesses?

Pros:

• Ensures transparent financial practices and reduces tax evasion.
• Compliant businesses avoid heavy penalties and scrutiny.
• With well-managed TDS processes, businesses can automate financial reporting and filings.
• Enhances trust with vendors, freelancers, and business partners.

Cons:

• Can lead to cashflow delays for commission earners, especially if refund is due.
• Administrative burden for businesses not using automated finance platforms.
• Incorrect deduction (wrong rate or amount) parallels penalties and disputes.
• Small businesses may find compliance tedious without external accounting support.

Expert insight: Many modern ERP and e-commerce solutions in 2025 feature inbuilt TDS compliance modules. Using such software reduces manual errors and workload.

Key Features and Recent Updates to Section 194H (2025)

What are the latest updates for Section 194H in 2025?

• Threshold: TDS under Section 194H applies above ₹15,000 paid to a single party in a financial year.
• Rate of TDS: Standard deduction remains at 5 percent. Absence of PAN results in 20 percent TDS.
• Digital compliance: Government mandates electronic TDS deposit and e-filing of TDS returns.
• Penalties: Interest at 1 percent per month for delayed deduction, and 1.5 percent per month for delayed deposit applies.

Quick Comparison Table: Section 194H vs Section 194D

Did you know? Unlike Section 194J (fees for professional or technical services), Section 194H is specifically for commission or brokerage, regardless of nature of work.

Commonly Asked Queries About Section 194H

Does Section 194H apply to digital affiliate commissions?

Yes, all payments for digital marketing campaigns, affiliate programs, or influencer partnerships (if commission exceeds ₹15,000 per party annually) are liable for TDS under 194H.

Is Section 194H deduction mandatory if the payee submits a lower or nil TDS certificate?

If the recipient of the commission obtains a certificate through Form 13 from the Assessing Officer allowing nil or lower TDS deduction, the deductor can follow the reduced rate mentioned on the certificate.

People Also Ask

Q: What happens if TDS under Section 194H is not deducted or deposited in time?

Such delay attracts interest and penalties as per Section 201, and the expense claimed as commission may be disallowed under Section 40(a) in the business’s tax computation.

Step by Step Example: Online Marketplace and TDS under Section 194H

Let’s take a practical case: You are a business owner using an online marketplace to compare courier partners. The marketplace receives a commission from the chosen courier on every successful delivery you book. If the aggregate annual commission the marketplace earns from one courier crosses ₹15,000, the courier must deduct 5 percent TDS under 194H before paying the marketplace.

Similarly, if you engage with multiple fintech platforms and compare their offerings in one place, each platform paying you a referral fee or commission must deduct TDS if your total earnings pass the threshold.

Many modern platforms now display TDS deductions on dashboards for easy reconciliation, especially in the era of e-invoicing in 2025.

TL;DR or Quick Recap

Section 194H makes it compulsory to deduct tax at source on commission or brokerage above ₹15,000 paid to residents in India. The standard TDS rate is 5 percent, with higher rates for missing PAN. Applicable to businesses and individuals with prior turnover above specified limits, electronic filing and deposit ensure compliance and transparency. Automated solutions make TDS deduction and deposit easier for both payers and recipients, while delays or non-compliance attract stringent penalties.

Frequently Asked Questions (FAQs) on Section 194H

People Also Ask

Q: Can commission payment to non-residents attract TDS under Section 194H?
No, 194H applies only to payments made to resident Indians. Commission to non-residents falls under Section 195.

Q: Is commission paid to bank agents or mutual fund agents covered?
Mutual fund commissions are usually covered under Section 194K, and certain bank commissions may be covered under other sections. Always check the nature of income before applying 194H.

Q: How do freelancers or gig workers who receive commissions declare TDS deducted under 194H?
Such earners can claim TDS credit while filing their income tax returns. The details will be auto-populated via Form 26AS in most filing platforms.

Q: When is TDS deducted under Section 194H not required?
If the total commission to a party in a year does not exceed ₹15,000 or if the payee furnishes a lower or nil TDS certificate from the officer.

Q: Can startups automate TDS compliance for Section 194H?
Yes, several online marketplaces and digital accounting solutions allow you to compare products from multiple companies and have automated TDS calculation and report generation, making compliance smooth and efficient.

Source

• Income Tax Department official portal: https://incometaxindia.gov.in/
• Practical Insights based on Indian tax compliance (2025)
• Finance Act 2024 and newer notifications.