Section 194H of the Income-tax Act mandates that any person (excluding individuals or Hindu undivided families) paying commission or brokerage to a resident must deduct income tax at a rate of 2% if the total amount exceeds Rs. 15,000 in a financial year. The Finance Bill 2025 proposes an amendment to increase this threshold from Rs. 15,000 to Rs. 20,000, meaning tax deduction at source (TDS) will only apply if the commission or brokerage paid during the year exceeds Rs. 20,000. This change aims to simplify the process for businesses by reducing the frequency of TDS on smaller payments. The amendment is set to take effect from April 1, 2025.
Budget 2025: Section 194H – Commission or brokerage.
Section 194H of the Act requires that any person, not being an individual or a Hindu undivided family, who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, deduct income-tax thereon at the rate of two per cent, if the amount paid during a financial year exceeds Rs. 15,000/-.
2. It is proposed to increase this threshold amount for requirement of deduction of tax at source under this section from Rs. 15,000/- to Rs. 20,000/-.
3. This amendment will take effect from the 1st day of April 2025.
[Clause 58]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 58 of the Bill seeks to amend section 194H of the Income-tax Act relating to commission or brokerage.
The said section, inter alia, provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st June, 2001, to a resident, any income by way of commission 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 two per cent..
The first proviso to the said section provides 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.
It is proposed to amend the said proviso so as to increase the threshold of such income for requirement to deduct tax at source under this section to twenty thousand rupees.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
58. Amendment of section 194H.
In section 194H of the Income-tax Act, in the first proviso, for the words “fifteen thousand rupees”, the words “twenty thousand rupees” shall be substituted.
