TDS on Commission and Brokerage under Section 194H for FY 2025-26: ₹20,000 Limit, 2% Rate, and the Discount-vs-Commission Line

Commission is paid in almost every business — to sales agents, property brokers, distributors, referral partners, booking platforms, and collection agents — and Section 194H is the provision that governs TDS on it. It has changed twice in eighteen months: the rate was cut from 5% to 2% with effect from 1 October 2024, and the Finance Act 2025 raised the threshold from ₹15,000 to ₹20,000 from 1 April 2025. Many businesses are still deducting at the old rate, or on payments that no longer qualify, or — the expensive error — not at all on arrangements they have labelled “discount” that the department reads as commission.

This is the FY 2025-26 position.

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The limit and the rate for FY 2025-26

	FY 2025-26
Threshold	Commission or brokerage exceeding ₹20,000 in aggregate to the same payee in the financial year
Rate	2%
No PAN	20% under Section 206AA
Base	Commission excluding GST, where GST is shown separately

The threshold is annual and aggregate. Once payments to a payee cross ₹20,000 in the year, TDS applies to the entire amount, including the earlier instalments that fell below it.

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What counts as commission or brokerage

Any payment, direct or indirect, received by a person acting on behalf of another for services rendered — other than professional services — or for services in the course of buying or selling goods, or in relation to any transaction relating to an asset, valuable article, or thing. In practice:

• Sales agents and referral commissions
• Real-estate brokerage on a purchase, sale, or lease
• Commission to distributors, dealers, and franchisees where they act as agents
• Commission to booking and aggregator platforms that act on your behalf
• Collection agents’ commission
• Recruitment and placement agency fees structured as commission

Excluded: insurance commission (Section 194D), brokerage on securities transactions, and commission paid to an employee (which is salary under 192).

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The line that generates notices: discount vs commission

A manufacturer sells to a distributor at a 15% discount off list price. The distributor sells onward at whatever price it chooses and bears the risk of unsold stock. That is a sale on a principal-to-principal basis, and the 15% is a trade discount — no TDS.

The same manufacturer appoints an agent, retains ownership of the goods until they reach the end customer, fixes the selling price, and pays the agent 15% of sales. That is commission, and Section 194H applies, whether the arrangement calls it commission, incentive, margin, or discount.

The test is who bears the risk and who owns the goods. The department reads agreements, not labels, and reclassification of a “discount” as commission — with 30% of the payment then disallowed under 40(a)(ia) — is a recurring scrutiny outcome for distribution-heavy businesses. If your distributor agreements say “agent” anywhere, or you control the resale price, assume 194H applies and structure accordingly.

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Who has to deduct

Every company, firm, LLP, trust, cooperative society, and any individual or HUF whose business turnover exceeded ₹1 crore, or professional receipts exceeded ₹50 lakh, in the preceding financial year. Individuals and HUFs below that test are outside 194H — unless they pay a single person more than ₹50 lakh in the year, in which case Section 194M applies at 2%.

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The agent who retains commission

Section 194H bites at credit or payment, whichever is earlier — and the commonest practical problem is the agent who collects from customers and remits the balance after deducting their own commission. No payment ever passes from you to the agent, yet TDS is still your obligation, because the commission is deemed paid when the agent retains it. The mechanism: credit the gross commission to the agent’s account in your books, deduct 2%, deposit it, and reconcile the agent’s remittance to the net figure. An agreement that requires the agent to remit gross and receive commission by separate payment avoids the problem entirely.

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Exemptions and special cases

• Payment-gateway and card-network commission retained by banks on customer payments is exempt under a 2016 notification. Charges by non-bank aggregators are contested; deduct or obtain a nil-deduction certificate.
• Commission paid by BSNL or MTNL to public call office franchisees is exempt.
• E-commerce operators paying sellers on their platforms deduct under Section 194-O at 0.1% on gross sales, not under 194H.
• Commission to a non-resident agent is under Section 195, not 194H, and the DTAA position on whether it is taxable in India at all needs to be examined before deducting.

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When to deduct, deposit, and file

Step	Timing
Deduct	At credit to the payee’s account or at payment, whichever is earlier
Deposit	By the 7th of the following month; March deductions by 30 April
Return	Form 26Q quarterly — 31 July, 31 October, 31 January, 31 May
Certificate	Form 16A within 15 days of the return due date

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Three worked examples

Example 1 — Below the limit. A property broker is paid ₹18,000 on one deal in the year, and nothing else. Aggregate ₹18,000, under ₹20,000. No TDS.

Example 2 — Crossing the limit. A referral partner earns ₹8,000 in May, ₹7,000 in August, and ₹9,000 in December. The December payment takes the aggregate to ₹24,000. TDS at 2% on the full ₹24,000 — ₹480 — deducted from the December payment.

Example 3 — Retained commission. A collection agent collects ₹5,00,000 from your customers, keeps ₹25,000 as commission, and remits ₹4,75,000. Credit ₹25,000 commission to the agent, deduct 2% — ₹500 — and deposit it by the 7th. The agent’s net entitlement is ₹24,500; the ₹500 shortfall in what they retained is recovered from the next remittance or invoiced.

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What a miss costs

Default	Consequence
Failure to deduct	Interest at 1% per month from the date deductible
Deducted but not deposited	Interest at 1.5% per month to the date of deposit
Late Form 26Q	₹200 per day under Section 234E, capped at the TDS
Non-filing beyond a year	Penalty of ₹10,000 to ₹1,00,000 under Section 271H
Expense disallowance	30% of the commission disallowed under Section 40(a)(ia)

A distributor “discount” of ₹40 lakh that the department reclassifies as commission carries a missed deduction of ₹80,000 — and a disallowance of ₹12 lakh in your own income. The classification question in the section above is worth settling before the year closes, not in a scrutiny reply.

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Frequently asked questions

What is the TDS limit on commission for FY 2025-26?

₹20,000 in aggregate to the same payee in the financial year, raised from ₹15,000 with effect from 1 April 2025. Once the aggregate crosses ₹20,000, TDS applies to the entire amount paid or credited during the year.

What is the TDS rate on commission and brokerage?

2%, reduced from 5% with effect from 1 October 2024. 20% applies where the payee has not furnished a PAN.

Is a trade discount to a distributor subject to TDS under 194H?

Not if the distributor buys on a principal-to-principal basis, owns the goods, sets the resale price, and bears the risk. If the “distributor” is in substance an agent — you retain title, fix the price, and pay a percentage of sales — the payment is commission and 194H applies regardless of the label.

My agent deducts commission from collections and remits the balance. How do I deduct TDS?

Credit the gross commission to the agent’s account in your books, deduct 2% at that point, and deposit it by the 7th of the next month. The retention is deemed payment. Reconcile the agent’s remittance against the net commission, and recover any shortfall from the next settlement.

Do I deduct TDS on payment-gateway charges?

Not on commission retained by banks on card and gateway transactions, which is exempt by notification. For non-bank aggregators the position is contested; deduct, or obtain a certificate for nil or lower deduction under Section 197.

Is commission paid to an employee covered by 194H?

No. Commission paid to an employee under the employment relationship is salary, taxed under Section 192 through the monthly salary TDS.

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Related reading

• TDS Rate Chart FY 2025-26 (AY 2026-27)
• TDS on Contractors — Section 194C for FY 2025-26
• TDS on Rent — Section 194I for FY 2025-26
• Outsourced Accounting & Bookkeeping — TDS deposited before the 7th, every month
• Income Tax Notice Reply & Representation