All About Section 194H

Understanding Section 194H: TDS on Commission and Brokerage

Section 194H of the Income Tax Act deals with Tax Deducted at Source (TDS) on commission and brokerage payments. If you earn commission or brokerage, like in sales, real estate, or insurance, the person or business paying you must deduct a percentage of your income as tax before handing it over to you. This ensures taxes are collected efficiently.

Who Does It Apply To?

Section 194H applies to anyone earning commission or brokerage, including sales agents, real estate brokers, stockbrokers, and marketing affiliates. It also applies to both individuals and businesses making such payments.

How Much Tax is Deducted?
Typically, the TDS rate is 5%, but it can increase to 20% if the recipient doesn’t provide a valid PAN number. In some cases, there might be exemptions or lower rates for senior citizens.

When is TDS Deducted?
TDS is deducted either when the commission or brokerage is paid or when it is credited to your account—whichever happens first.

How is TDS Paid to the Government?
The person making the payment deposits the TDS with the government and provides you with a TDS certificate (Form 16A), which you use to claim credit while filing your income tax returns.

How Does TDS Affect You?
TDS helps you pay taxes gradually throughout the year, reducing the burden when filing returns. For example, if you’re a real estate agent, the agency handling the sale will deduct TDS before giving you the commission, and you’ll account for this when filing taxes.

What if TDS is Not Deducted?
If the payer fails to deduct TDS, you must ensure the tax is paid directly to the government and may face penalties.