Insurance agents, real estate brokers, distributors, and freelancers who earn commission-based income often see TDS deducted from their payouts under Section 194H — sometimes without fully understanding why, or how it affects their tax filing. Here's what triggers this TDS, the current threshold and rate, and how recipients should handle it in their ITR.
What Section 194H Covers
Section 194H requires any person (other than an individual or HUF not subject to tax audit in the preceding financial year) responsible for paying commission or brokerage to a resident to deduct TDS at the time of credit or payment, whichever is earlier.
Threshold and Rate
| Particulars | Detail |
|---|
| TDS Rate | 5% |
| Threshold (no TDS below this) | Aggregate commission/brokerage up to ₹20,000 in a financial year (TDS applies once this is exceeded) |
| Higher rate for those who haven't filed ITR (Section 206AB) | Higher of: twice the specified rate, or 5% — if the recipient is a 'specified person' under Section 206AB |
⚠ 'Commission or brokerage' is defined broadly — it includes any payment received for services rendered (not being professional services) in the course of buying/selling goods, or in relation to any transaction relating to an asset, valuable article or thing, not being securities. This means it covers a wide range of agent/intermediary arrangements: insurance commission, real estate brokerage, distributor margins structured as commission, referral fees, etc.
What's Excluded from Section 194H
- Insurance commission covered separately under Section 194D (a related but distinct provision specifically for insurance commission, also generally at 5%)
- Commission/brokerage paid by individuals/HUFs NOT subject to tax audit in the preceding year (i.e., small individual payers below the tax audit turnover threshold generally don't need to deduct this TDS)
- Transactions relating to securities (brokerage on stock trades is governed by different rules/exchange-level deductions, not 194H)
How Recipients Should Treat This TDS
If you're a freelancer, agent, or distributor receiving commission income with TDS deducted under Section 194H:
- The TDS appears in your Form 26AS/AIS under your PAN
- Report the GROSS commission income (before TDS) under the appropriate head — usually 'Profits and Gains from Business or Profession' if commission is your regular business activity, or 'Income from Other Sources' for occasional/incidental commission
- Claim the TDS deducted as a credit against your total tax liability when filing your ITR
- If your total income (after allowable expenses, if treated as business income) results in a tax liability lower than the TDS deducted, you'll receive a refund
ExamplePriya is an independent insurance agent who earned ₹3,00,000 in commission during the year, with ₹15,000 TDS deducted under Section 194D (insurance commission, similar treatment to 194H). She reports ₹3,00,000 as business income (eligible to claim related business expenses such as travel, phone, office costs against this), computes her tax liability on the net income after expenses and other deductions, and claims the ₹15,000 TDS as a credit against this liability.
What If TDS Was Deducted But You Have Losses/Low Income?
This is common for agents/freelancers in their early years — if your net taxable income (after expenses) is below the basic exemption limit or results in low/nil tax liability, the TDS deducted under 194H would largely or entirely be refunded after you file your ITR. It's important to file an ITR even if your income is below the taxable threshold, specifically to claim such TDS refunds — otherwise the deducted amount simply stays with the government.
Frequently Asked Questions
I'm a freelance sales agent who received ₹18,000 in commission this year from one company — will TDS be deducted? ▼
No. Section 194H requires TDS to be deducted only if the aggregate commission or brokerage paid to you by that payer during the financial year EXCEEDS ₹20,000. Since ₹18,000 is below this threshold, no TDS should be deducted under Section 194H on this payment. If your commission from the same payer crosses ₹20,000 later in the same financial year (across multiple payments), TDS would then apply on the amount in excess, and potentially be deducted retrospectively on the cumulative amount depending on how the payer's systems are configured.
My commission income had TDS deducted under Section 194H, but my total income is below the basic exemption limit — can I get the TDS back? ▼
Yes. TDS under Section 194H is a credit against your final tax liability, not a final tax itself. If your total taxable income (after claiming any allowable business expenses against the commission income, and other deductions) is below the basic exemption limit or otherwise results in zero or low tax liability, you can file an ITR (even though your income may be below the mandatory filing threshold) specifically to claim a REFUND of the TDS deducted. Filing the ITR is necessary to get this refund — it isn't automatic.
Is brokerage paid by my stockbroker for buying/selling shares subject to Section 194H TDS? ▼
No. Section 194H specifically excludes 'commission or brokerage' relating to transactions in SECURITIES. Brokerage charged by your stockbroker for executing trades in shares, mutual funds, etc., is governed by exchange/SEBI-level fee structures and is not subject to TDS under Section 194H. Section 194H applies to commission/brokerage in non-securities contexts — such as insurance commission, real estate brokerage, sales agent commissions, and similar arrangements.