Picture this: Rajesh & Co. Pvt. Ltd. sells goods through a commission agent — Mr. Sharma — and pays him ₹40,000 as commission. Before handing over that cheque, Rajesh & Co. must deduct TDS at 5% and deposit it with the government. That's Section 194H in one line: deduct TDS on commission or brokerage before paying a resident.
Who must deduct, what triggers it, and at what rate? Any person who is not an individual or HUF must deduct TDS at 5% on commission or brokerage paid to a resident. The deduction happens at the earlier of (a) crediting the amount to the payee's account, or (b) actual payment in cash, cheque, or any other mode. The threshold is ₹15,000 per financial year — if total commission paid/credited to one person stays below ₹15,000, no TDS needed. Individuals and HUFs are normally exempt from this duty, but if their business turnover exceeded the Section 44AB tax audit limit in the immediately preceding year, they too must deduct TDS under 194H.
What counts as 'commission or brokerage' here? It's broad: any payment — direct or indirect — made to someone acting on behalf of another for services (other than professional services) or for services in buying/selling goods or in transactions involving any asset or valuable article (excluding securities). So a stock broker's commission is not covered (securities are excluded); insurance commission is also excluded (that's Section 194D). Professional fees paid to a CA, doctor, engineer, architect, or interior decorator are also outside 194H's scope. One quirky exemption: BSNL and MTNL do not deduct TDS on commission paid to their PCO franchisees. Also remember — if commission is first parked in a 'Suspense Account,' that credit itself triggers TDS. This is asked frequently as a 4-mark or 5-mark question in CA Inter exams, especially to test whether a student can identify what's included vs. excluded from the definition of commission.
📊 Worked example
Example 1 — Standard TDS on Commission
Sunrise Distributors Pvt. Ltd. appoints Ms. Iyer as their sales agent. During FY 2025-26, they credit her account as follows:
- April 2025: ₹6,000
- September 2025: ₹7,000
- January 2026: ₹10,000
Working:
- After April credit: Cumulative = ₹6,000 → Below ₹15,000 threshold → No TDS yet
- After September credit: Cumulative = ₹6,000 + ₹7,000 = ₹13,000 → Still below ₹15,000 → No TDS yet
- After January credit: Cumulative = ₹13,000 + ₹10,000 = ₹23,000 → Crosses ₹15,000 → TDS triggered on entire ₹23,000
- TDS = 5% × ₹23,000 = ₹1,150 (to be deducted in January)
Final Answer: TDS of ₹1,150 must be deducted in January 2026 when the threshold is crossed.
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Example 2 — Individual with Tax Audit Liability
Mr. Kapoor runs a trading business. His turnover in FY 2024-25 was ₹1.2 crore (exceeds ₹1 crore tax audit limit under Section 44AB). In FY 2025-26, he pays ₹60,000 as commission to a resident agent.
Working:
- Mr. Kapoor is an individual, normally exempt from 194H.
- BUT his preceding year turnover (₹1.2 crore) crossed the 44AB limit.
- Therefore, he IS liable to deduct TDS under 194H.
- ₹60,000 > ₹15,000 threshold → TDS applies.
- TDS = 5% × ₹60,000 = ₹3,000
Final Answer: Mr. Kapoor must deduct TDS of ₹3,000 before paying the commission.
⚠️ Common exam mistakes
- Confusing the threshold as per-payment vs. per-year: Students think each individual payment must exceed ₹15,000. Wrong — ₹15,000 is the aggregate for the entire financial year. Once cumulative commission crosses ₹15,000, TDS applies on the full amount.
- Ignoring the 44AB exception for individuals/HUFs: Don't assume individuals are always exempt. If their preceding year's turnover crossed the 44AB limit, they must deduct TDS. Always check the preceding year's turnover before concluding 'no TDS'.
- Including securities brokerage under 194H: Stock broker commissions (involving securities as defined under SCRA 1956) are explicitly excluded. Don't apply 194H to brokerage on shares or debentures.
- Mixing up 194H with 194D: Insurance commission is covered under Section 194D, not 194H. Don't club them — different rates, different sections.
- Missing the Suspense Account trigger: If commission is parked in a suspense account before formal credit, TDS must still be deducted at the time of that entry. Many students only watch for final payment and miss this early trigger.
📖 Bare Act text — Section 194H, Income Tax Act 1961
(click to expand)
Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.: Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees: Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees. Explanation.—For the purposes of this section,— (i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; (ii) the expression "professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (iv) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
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