Section 194H A Full Guide in 2025

Section 194H of the Income Tax Act is a crucial provision that mandates the deduction of tax at source (TDS) on income received as commission or brokerage. The professionals, businesses, and financial advisors who work at the level of commissions should learn section 194H to be able to act according to the law to avoid penalties in 2025.

Section 194H - what is it?

Section 194H highlights the rules for TDS deduction on payments classified as commission or brokerage (excluding insurance commission, which falls under Section 194D). Both the individuals and the entities that make such payments will be subject to this law, so long as the respective payments exceed stipulated monetary limits during a financial year.

The brass-tacks of Section 194H can be explained easily. When any business or individual incurs commission or brokerage to a resident, he/she will pay tax at a stipulated rate prior to making the payment. This accumulated TDS is deposited with government.

You may not know? Section 194H is one of the misinterpreted laws of many small businesses that believe it only applies to the large companies. Nevertheless, payment thresholds have been going down over the years, and this compliance is significant even to the MSMEs and the online service providers in the year 2025.

Section 194H in the year 2025 - Why is it relevant?

It is more important than ever to be in line with the Section 194H. The commissions and brokerages transactions have increased many times as digital platforms, online marketplaces, and aggregators devenvolve at a rapid pace. Section 194H tends to fall into place whether it is an app-based real estate agent, e-commerce affiliate, or gig-economy worker.

There are some of the new government activities and the GST alignments that have made the TDS filings to be under scrutiny. Synthesis of TDS information between systems will maintain overview of evasion and non-compliance.

Important items or highlights of Section 194H in 2025:

• Lower threshold limit: According to the current amendments made on the finance section, TDS is payable in Section 194H at the amount of 15,000 a fiscal year.
• Revised rate: The usual TDS rate will continue to be at 5 percent but rebates can be informed on specific digital transactions or small start-ups.
• PAN requirement: Payee provided non-compliant or lacking PAN PAN which will result in one paying increased TDS.
• Deposit on time: The TDS deducted should be deposited with the government by the 7th of the respective next month with the quarterly returns of TDS being filed as required.

Who is to deduct TDS Under Section 194H?

Any person, other than an individual or Hindu Undivided Family (HUF) not subject to tax audit in the previous financial year, who pays commission or brokerage to a resident exceeding ₹15,000 in aggregate is required to deduct TDS under Section 194H. Simply put:

• Businesses and firms with sales or turnover crossing ₹1 crore (for business) or ₹50 lakh (for professionals) in the preceding financial year must deduct TDS.
• In case such payments are made, most governments, companies, partnerships, LLPs, partnerships, and trust must deduct TDS.

Insider tip: Within my CA practice, I regularly advise startups regarding the TDS applicability in case of influencers marketing where there is a payout of commission or referral fee by online media. Although, you may be in a business where you conduct the whole business only through digital channel or online marketing, Section 194H is still applicable once the payouts exceeds the threshold.

Which kinds of payments come under Section 194H commission/brokerage?

Section 194H covers wide ground as to commission or brokerage. It consists of any money earned in connection with:

• Making the goods to be sold or bought.
• Service lay-out.
• As the middleman, to referral fees, and finders fees.

The following are not covered in the Section 194H:

• Insurance commission (falls under Section 194D).
• Securities dealing.

Example:

The way in which an e-commerce aggregator works is that it pays a food delivery platform commission per order that it delivers. Such payment is governed by 194H.
The commission on the product sales paid to the distributor by the manufacturer is also covered in the form of commission to an offline distributor that receives a percentage of the sales of a particular product.

People also ask

Q: Does TDS Calculation under Section 194H include GST?
A: No, in case separately GST is mentioned in invoice TDS is not charged on GST, it is charged on Base commission amount.

Deduction and Deposit of TDS Section 194H?

How will TDS deduction using Section 194H take place?

TDS deduction and deposit is an orderly activity:

• Deduct TDS: When making payment or crediting commission to the payee’s account (whichever is earlier), deduct 5 percent of the commission.
• Deposit TDS: It receives the deducted TDS amount by the 7th of the succeeding month and pay it to the Central Government.
• TDS Certificates: Provide the deducted party (payee) with a TDS Certificate (Form 16A) showing details of the TDS.
• Quarterly Statements: File TDS return in FORM 26Q for each quarter.

You might not know this but… Delay in TDS deposits incurs interest under Section 201 and other hefty penalties which is detected during normal tax audit.

First-Hand experience: TDS on brokerage in online businesses

As a consultant for multiple fintech startups and digital service agencies, I’ve witnessed that digital bookkeeping platforms and online marketplaces automate TDS deductions these days. Not only this lowers the likelihood of human error but also concerns on cos called on time deposit as well as compliance. On one of the tech platforms that I have worked with, they incorporated use of TDS in their vendor payout calendar which means anyone who pays commission earns it in 194H checks.

A third problem is the fact that several partners or freelancers who are third-party partners are not aware of the deduction of TDS or do not update their PAN information which ends up in deducting at 20 percent instead of 5 percent. Such issues can be reduced with the help of outreach and education on compliance, and automated reporting tools can be used to monitor the deduction status of each transaction.

People also ask

Q: Is it that self-employed professionals can be compensated on the basis of commission without the attaction of 194H TDS?
A: No, when they are the acting agents/intermediary and earn commission more than the limit mentioned in the section, then, Section 194H is basic requiring to be paid.

What are the merits and demerits of Section 194H to businesses?

Pros:

• Getting a little bit of financial clarity and avoid big taxation.
• Businesses which adhere are not subject to severe fines and questioning.
• Successful TDS processes enable filing and reporting financial management to be automated.
• Creates more trust among the vendors, freelancer, and business partners.

Cons:

• May cause cashflow delay to commission earners particularly where there is a case of refund.
• Businesses that do not utilize automated finance platform are subject to administrative burden.
• Incorrect deduction (wrong rate or amount) parallels penalties and disputes.
• Compliance might be very demanding to the small businesses without an outside accounting team support.

Professional opinion: The TDS compliance modules are inbuilt in many current ERP and e-commerce platforms in the year 2025. With such softwares, workload and manual errors are minimized.

What are the Key Features and Recent Updates to Section 194H 2025 ?

• Limit: When it is paid to one party in a financial year, over this amount, TDS under Section 194H is applicable.
• TDS rate: Standard rate of deduction is 5 percent. A lack of PAN leads to 20 percent TDS.
• Digital compliance: e-filing of TDS returns, and electronic TDS deposit is made mandatory by the government.
• Penalties: the penalty is interest upon delayed deduction of 1 percent at a rate of every month and the penalty is 1.5 percent per month of delayed Deposit.

Rapid Comparison Table: Section 194H with respect to Section 194D

Did you not know? Unlike Section 194J (fees for professional or technical services), Section 194H is specifically for commission or brokerage, regardless of nature of work.

Frequently Asked Questions regarding the S.194H

Q: Is digital affiliate commission to put Section 194H into use?
A: Yes, all payments for digital marketing campaigns, affiliate programs, or influencer partnerships (if commission exceeds ₹15,000 per party annually) are liable for TDS under 194H.

Q: Does the payee need to pay Section 194H deduction when he/she provides a lower or nil TDS certificate?
A: The deductor can go by the reduced rate as stated on the certificate in case the recipient of the commission gets a certificate under Form 13 by an Assessing Officer permitting nil or certain amount of TDS detection.

People Ask

Q: What will be the consequences should TDS under Sec. 194H be de deducted and deposited late?
Such delay attracts interest and penalties as per Section 201, and the expense claimed as commission may be disallowed under Section 40(a) in the business’s tax computation.

Case study: Section 194h and Online market platform (TDS) Step by Step

Now, say we have a hypothetical scenario: You are a business owner who is on an online marketplace to make comparisons between courier partners. The marketplace could be paid a commission by the selected courier on each successful delivery that you schedule. In case the total amount of the annual commission which the marketplace receives by one courier exceeds 15,000 rupees, then 5 percent TDS should be deducted by the courier under section 194H prior to submitting the amount to the marketplace.

Likewise, when you use several fintech platforms and compare services with each other on a single platform where each platform pays you a referral buff or commission, it means that all platforms will be required to apply TDS in case the amount earned by you exceeds the amount limit.

In the e-invoicing period that will be in 2025, quite a lot of these modern platforms have now installed TDS deductions dashboards to have easy reconciliation.

But in a nutshell or tl;dr (to make it short)

Section 194H provides that deduction of tax at source is the mandatory requirement both on the commission or brokerage exceeding the prescribed amount of 15000 rupees to be paid to any resident in India. There is a standard rate of TDS that is 5 percent; it is increased when one misses to provide PAN. Electronic filing and deposit can apply to business and individuals who have previous turnover above defined limits to have compliance and transparency. Automation of TDS deduction and deposit is simpler to both the remitters and the recipients and delays or failure to do so carries severe following.

Frequently Asked Questions (FAQs) on Section 194H

Q: Could non-residents commission payment entail TDS under Section 194H?
A: No, 194H is applicable in case of payments made to resident Indians only. S 195 applies to commission to non-residents.

Q: Does commission paid to bank agents or mutual fund agents cover?
A: The commission of the mutual funds is generally liable under the Section 194K and some of the commissions by the banks come under other sections. Be sure to review the substance of income prior to applying of 194 H.

Q: How do the freelancers or the SS workers who are on commission report their deducted taxes TDS 194H?
A: TDS credit can be obtained by such earners as they pay income tax. Through Form 26AS, most of the filing platforms will auto-populate the details.

Q: In which cases is not required TDS deduction at S.194H?
A: Where the aggregate amount of commission paid to a party in a financial year does not exceed 15,000 or in case he produces a certificate from the officer having a lower amount or nil TDS.

Q: Is it possible to have automation of TDS compliance through startups with Section 194H?
A: Surely, there are various online stores and web-based accounting services that enable you to check the offerings of several companies and provide automatized calculation of TDS and creation of the report, which smoothes the process of following the law.

Sources:

• Official Income Tax Department (Government of India)