Section 194H TDS on Commission & Brokerage: 2% Rate
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 | 2% (reduced from 5%, effective 1 October 2024) |
| Threshold (no TDS below this) | Aggregate commission/brokerage up to ₹20,000 in a financial year (raised from ₹15,000 effective 1 April 2025; TDS applies once this is exceeded) |
| Higher rate for non-filers (Section 206AB) | Section 206AB itself was omitted with effect from 1 April 2025 — this separate higher-TDS-for-non-filers mechanism no longer applies to payments made on or after that date |
What's Excluded from Section 194H
- Insurance commission covered separately under Section 194D (a related but distinct provision specifically for insurance commission, also reduced to 2% as part of the same rate rationalisation)
- 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
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.
2026 current-law quick reference
What changes the answer?
| What to check | What to do | Common mistake to avoid |
|---|---|---|
| Core classification | Confirm the payment is genuinely commission/brokerage (not a trade discount or principal-to-principal margin) before applying the 2% rate to the aggregate paid. | Do not decide from the label used on an invoice, agreement or bank narration alone. |
| Edge case | Do not classify trade discounts or principal-to-principal margins as commission merely because the recipient is called a dealer/agent. | Recompute when the fact pattern crosses this boundary. |
| Evidence | Reconcile the documents below to the tax/regulatory return before filing. | A correct legal rule with an unreconciled evidence trail can still fail in assessment or audit. |
| Effective date | Apply the law/form/rate for the actual transaction, tax year or proceeding date. | Do not mix FY 2025–26/AY 2026–27 legacy references with post-1-April-2026 forms. |
Worked practical example
A company pays ₹2 lakh true brokerage and separately gives a ₹50,000 trade discount to a dealer. Test the legal relationship of each payment before deducting TDS.
Evidence checklist
- agency/distribution agreement
- commission ledger
- invoices/credit notes
- PAN
- TDS returns/certificates
Primary-source checks: Income Tax Department — TDS rates/guidance · Income-tax Act 2025 transition/forms
How to use this: This current-law summary reflects the latest position. Where it conflicts with an older rate, threshold, form or section reference elsewhere on the page, rely on the current, dated primary source above.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometax.gov.in
Page source links
The prior page did not embed a page-specific external source. The category authority above is the minimum verification starting point; a specific instrument should be added when available.
Primary sources & related provisions
Statutory provisions referenced in this guide: