TDS Under Section 194H — Tax Deduction on Commission and Brokerage Payments

Section 194H of the Income Tax Act requires TDS (Tax Deducted at Source) to be deducted on payments made in the nature of commission or brokerage. This applies to all businesses that pay agents, distributors, or brokers for their services. Here is the complete compliance guide.

Who Must Deduct TDS Under Section 194H?

Any person (other than individuals and HUFs not liable for tax audit) who is responsible for paying commission or brokerage to a resident person must deduct TDS under 194H. Individuals and HUFs liable for tax audit (turnover above ₹1 crore for business or ₹50 lakh for profession) must also deduct.

What is "Commission or Brokerage" Under 194H?

Under Explanation to Section 194H, commission/brokerage means any payment received by a person acting on behalf of another for:

• Services rendered (not as an employee)
• For buying or selling goods, or providing similar services
• Any transaction relating to any asset, valuable article, or thing — not being securities

This covers: sales commissions to distributors/dealers, brokerage paid to property agents, commission to referral agents, payment to c&f agents, marketing agent fees, etc.

TDS Rate and Threshold

• TDS rate: 5% of commission/brokerage amount
• Threshold: TDS applies only if aggregate commission to a single person exceeds ₹15,000 in the financial year
• If recipient does not furnish PAN: TDS at 20% (Section 206AA)
• Timing: TDS deducted at the time of credit or payment, whichever is earlier

Exclusions from Section 194H

• Insurance commission: Commission paid by insurance companies to agents is covered under Section 194D (not 194H)
• Stock exchange transactions: Commission paid by stock exchanges to their members is excluded from 194H
• Bank transactions: Certain banking commissions like bank guarantee commissions are excluded

Compliance Requirements

• Deduct TDS at the time of payment/credit to the agent's account
• Deposit TDS by 7th of the following month (30 April for March)
• File Form 26Q quarterly TDS return with Section 94H deductions reported
• Issue Form 16A to the agent annually showing TDS deducted

Conclusion

Section 194H TDS applies broadly to all commission and brokerage arrangements — missed deductions lead to disallowance of expenses and penalties. SPOTON handles complete TDS compliance including Section 194H for businesses across Kerala. Contact us for expert TDS management services.