Section 194H of the Income Tax Act, 1961 deals with the deduction of tax at source (TDS) on income by way of commission or brokerage (other than insurance commission covered under Section 194D).

It ensures that tax is collected at the point of earning such income, thereby widening the tax base and enabling easy tax administration.

Applicability

TDS under Section 194H is applicable when the following conditions are satisfied:

• Payer: Any person (except individual/HUF not liable to tax audit under Section 44AB in the previous financial year).
• Payee: Resident individual or firm.
• Nature of Payment: Income by way of commission or brokerage (excluding insurance commission).
• Threshold: When the total amount paid or credited exceeds ₹15,000 in a financial year.

💡“Commission or brokerage” includes any payment received or receivable (directly or indirectly) for services rendered in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing (excluding securities).

Threshold Limit

• TDS is applicable only if the aggregate commission or brokerage exceeds ₹15,000 during the financial year per recipient.
• No TDS is required if the total payment during the year is ₹15,000 or less.

Rate of TDS

✅Note: There is no surcharge or cess applicable on TDS under Section 194H. Deduction is on the gross amount of commission/brokerage.

Time of Deduction

TDS must be deducted:

• At the time of credit of such income to the account of the payee (even if credited to suspense or provision account),
  or
• At the time of payment, whichever is earlier.

Payment of TDS

Once deducted, the TDS must be deposited with the government:

🔁 Payment is made using Challan No. ITNS 281 either through:

• Online via the Income tax Portal, or
• Bank physically.

TDS Return Filing (Form 26Q)

Returns must be filed in Form 26Q, which is for non-salary TDS.

TDS Certificate (Form 16A)

• Deductors must issue Form 16A (TDS certificate) to the deductee within 15 days from the due date of TDS return filing for the quarter.
• This is downloadable from the TRACES portal.

Non-Applicability of Section 194H

TDS under Section 194H shall not apply in the following cases:

1. Commission or brokerage ≤ ₹15,000 during the financial year.
2. Payment made by an individual or HUF not covered under tax audit (Sec 44AB) in the preceding FY.
3. Payment to banks or payment gateway providers in certain cases (e.g., RBI Circular – no TDS on MDR).
4. Payment exempt under specific CBDT notifications.
5. Payments to non-residents (Sec 195 applicable instead).

Exemption from TDS – Forms 15G/15H

• Not applicable for Section 194H as commission/brokerage is not interest income.
• Form 15G/15H declarations cannot be used to avoid TDS under Section 194H.

Consequences of Non-Compliance

Journal Entry (Accounting)

Here’s a simple accounting treatment at the time of commission payment:

At the time of booking commission:

Commission Expense A/c     Dr.

To Commission Payable A/c

At the time of TDS deduction:

Commission Payable A/c     Dr.

To TDS Payable (194H) A/c

To Bank/Cash A/c (for net payment)

Examples

✳️ Example 1:

ABC Ltd. pays ₹25,000 commission to Mr. X in FY 2024-25.

• Since the amount exceeds ₹15,000 → TDS applicable.
• TDS = ₹25,000 × 5% = ₹1,250
• Net Payment = ₹23,750

✳️ Example 2:

XYZ (an individual) paid ₹18,000 brokerage to Mr. Y, but XYZ is not liable to tax audit.

Not liable to deduct TDS u/s 194H as tax audit not applicable in preceding FY.