I pay my selling agents a percentage on every order they bring in, and I give my distributors a discount off the list price. Do I deduct under section 194H, at what rate, and from what figure does the obligation start?
Section 194H makes a payer who is not an individual or a Hindu undivided family deduct tax on any income by way of commission or brokerage paid to a resident, at two per cent. It was five per cent until 30 September 2024 and was substituted by Act No. 15 of 2024 with effect from 1 October 2024, so anything still applying five per cent to a later payment is applying a superseded rate. The threshold is an annual aggregate, not a monthly one: no deduction is required where the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year does not exceed twenty thousand rupees, a figure substituted for fifteen thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025 — and it stayed an annual aggregate on the very date section 194-I's rent threshold became a monthly one, so a payer who runs both rent and commission now applies two different kinds of test. Insurance commission is expressly outside the section and belongs to section 194D, and services rendered that are "professional services" are excluded from the definition and belong to section 194J; the section is also not divided into sub-sections, being printed as one unnumbered operative paragraph, three provisos and an Explanation in four clauses. All of this is the Income-tax Act, 1961, which the CBDT's transition FAQ says stands repealed on 1 April 2026. For a credit or payment on or after that date the corresponding provision is serial number 1(ii) of the Table to section 393(1) of the Income-tax Act, 2025, at the same two per cent and the same twenty thousand rupees.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Section 194H of the Income-tax Act, 1961, as amended up to 2026. It bears on section 194H, section 194J, section 194G, section 194D, section 44AA, section 44AB, section 40(a)(ia), section 194-I, section 393 (Act of 2025) of the Income Tax Act 1961, in TDS Defaults and How Tax Law Is Read matters.
The rate is the thing to get right, because it moved recently. The real exposure is the payer who looked at the section once in 2023, saw five per cent and fifteen thousand rupees, and has not looked since — both figures are now wrong, and the threshold being wrong is worse than the rate being wrong, because it decides whether there was any obligation at all. An officer working assessment year 2026-27 will apply two per cent and twenty thousand rupees; an officer working assessment year 2025-26 will apply two per cent from 1 October 2024 and five per cent before it, on a fifteen-thousand-rupee threshold throughout. Say which period you are on before you quote a figure. The definitional fight is worth more than the rate. Explanation clause (i) is an inclusive definition built on the words “by a person acting on behalf of another person”, and that phrase is what the whole principal-to-principal argument turns on. A distributor who buys stock outright and resells at whatever price he can get is not acting on behalf of anyone; the margin he makes is his trading profit, not a payment the supplier made him. A selling agent who books orders in his principal's name and binds the principal to the customer is acting on behalf of another person, and his percentage is commission however the invoice describes it. That is the line Bharti Cellular draws, and it is drawn by reference to the power to alter the principal's legal relationship with a third party rather than by reference to the label the parties used. Expect an officer to work from the label, and expect the answer to depend on the agreement, the risk of loss, whose name is on the sale and who bears the bad debt.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
Section 194H reads: "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 two 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 twenty 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 one crore rupees in case of business or fifty lakh rupees in case of profession 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." The section carries no sub-section numbering in any version read: the operative words are one unnumbered paragraph. It carries a general cross-reference footnote: "See rules 28, 28AA, 28AB, 30, 31, 31A and 37BA and Form Nos. 13, 16A, 24G, 26B, 26Q and 27A."
For any credit or payment made up to 31 March 2026, section 194H obliges a payer who is not an individual or a Hindu undivided family, and an individual or Hindu undivided family caught by the second proviso, to deduct two per cent on income by way of commission or brokerage paid to a resident. Deduction is at credit or payment, whichever is earlier, and a credit to a suspense account counts. The obligation does not arise at all unless the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year exceeds twenty thousand rupees. Payment to a non-resident is outside the section entirely, because the section reaches only income paid "to a resident". What changed, and when. The rate has moved four times and the section's own footnote sets out the whole run: "two" was substituted for "five" by Act No. 15 of 2024 with effect from 1 October 2024; earlier "five" was substituted for "ten" by Act No. 28 of 2016 with effect from 1 June 2016; "ten" was substituted for "five" by Act No. 22 of 2007 with effect from 1 June 2007; and "five" was substituted for "ten" by Act No. 20 of 2002 with effect from 1 June 2002. The threshold has moved three times since the section was reintroduced, and two thousand five hundred rupees was the figure the reintroduced section itself carried from 1 June 2001, not only the figure of the version omitted in 2000: it went to five thousand rupees by the Finance Act, 2010 with effect from 1 July 2010, to fifteen thousand rupees by Act No. 28 of 2016 with effect from 1 June 2016, and to twenty thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025. The turnover test in the second proviso was substituted for the old cross-reference to "the monetary limits specified under clause (a) or clause (b) of section 44AB" by Act No. 12 of 2020 with effect from 1 April 2020. The BSNL and MTNL proviso was inserted by the Finance Act, 2007 with effect from 1 June 2007. The section itself has a broken history: its footnote records that it was "Reintroduced by the Finance Act, 2001, w.e.f. 1-6-2001. Earlier section 194H was omitted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its omission, section 194H, was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991 and later on amended by the Finance Act, 1992, w.e.f. 1-6-1992." That is why the operative words carry the date 1 June 2001 on their face. What the section does not reach. Insurance commission referred to in section 194D is excluded by the operative words. Services rendered that are "professional services" are excluded by Explanation clause (i), and clause (ii) defines that expression for this section by reference to the professions notified by the Board for the purposes of section 44AA — which is not the same definition section 194J uses, so the two sections are not perfect complements and a payment can fall between them. Securities, as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, are carved out of the "asset, valuable article or thing" limb. Commission on the sale of lottery tickets has its own section, 194G, which also stands at two per cent on an amount exceeding twenty thousand rupees, both figures carrying the same two amending Acts and dates as section 194H. The principal-to-principal question. This is the section's standing fight, and the Supreme Court has decided it on one set of facts. In Bharti Cellular Ltd v Assistant Commissioner of Income Tax, Civil Appeal No. 7257 of 2011 and connected appeals, decided 28 February 2024 by Sanjiv Khanna and S.V.N. Bhatti JJ, the Court held at paragraph 42: "In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case." The test the Court applied is set out at paragraph 8 — "The essential characteristic of an agent is the legal power vested with the agent to alter his principal's legal relationship with a third party and the principal's co-relative liability to have his relations altered" — and at paragraph 9, "The substance of the relationship between the parties, notwithstanding the nomenclature given by the parties to the relationship, is of primary importance." So the question is not what the discount is called but whether the recipient can alter the payer's legal position with a third party. The Court has gone the other way on other facts: in Singapore Airlines Ltd v CIT the supplementary commission retained by travel agents was held to be commission within the section, and in CIT v Ahmedabad Stamp Vendors Association the discount to licensed stamp vendors was held to be a cash discount on a sale, so the section had no application. All three are in the library. One date sits outside the section. The CBDT's transition FAQ records that the Income-tax Act, 1961 stands repealed on 1 April 2026 and that any sum paid or credited on or after that date is governed by the corresponding withholding provision of the Income-tax Act, 2025. Serial number 1(ii) of the Table to section 393(1) covers "[a]ny income by way of commission [not being insurance commission referred to in serial number 1(i)] or brokerage" at two per cent with a threshold of twenty thousand rupees, so the substance is unchanged but the section number is not 194H.
Not applicable — this is a statement of the statutory text, with the amendment history taken from the footnote apparatus carried on the section. No judicial reasoning is involved.
"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
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppSection 194H makes a payer who is not an individual or a Hindu undivided family deduct tax on any income by way of commission or brokerage paid to a resident, at two per cent. It was five per cent until 30 September 2024 and was substituted by Act No. 15 of 2024 with effect from 1 October 2024, so anything still applying five per cent to a later payment is applying a superseded rate. The threshold is an annual aggregate, not a monthly one: no deduction is required where the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year does not exceed twenty thousand rupees, a figure substituted for fifteen thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025 — and it stayed an annual aggregate on the very date section 194-I's rent threshold became a monthly one, so a payer who runs both rent and commission now applies two different kinds of test. Insurance commission is expressly outside the section and belongs to section 194D, and services rendered that are "professional services" are excluded from the definition and belong to section 194J; the section is also not divided into sub-sections, being printed as one unnumbered operative paragraph, three provisos and an Explanation in four clauses. All of this is the Income-tax Act, 1961, which the CBDT's transition FAQ says stands repealed on 1 April 2026. For a credit or payment on or after that date the corresponding provision is serial number 1(ii) of the Table to section 393(1) of the Income-tax Act, 2025, at the same two per cent and the same twenty thousand rupees. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 194H, section 194J, section 194G, section 194D, section 44AA, section 44AB, section 40(a)(ia), section 194-I, section 393 (Act of 2025) of the Income Tax Act 1961. It is reported as Section 194H of the Income-tax Act, 1961, as amended up to 2026. The rate is the thing to get right, because it moved recently. The real exposure is the payer who looked at the section once in 2023, saw five per cent and fifteen thousand rupees, and has not looked since — both figures are now wrong, and the threshold being wrong is worse than the rate being wrong, because it decides whether there was any obligation at all. An officer working assessment year 2026-27 will apply two per cent and twenty thousand rupees; an officer working assessment year 2025-26 will apply two per cent from 1 October 2024 and five per cent before it, on a fifteen-thousand-rupee threshold throughout. Say which period you are on before you quote a figure. The definitional fight is worth more than the rate. Explanation clause (i) is an inclusive definition built on the words “by a person acting on behalf of another person”, and that phrase is what the whole principal-to-principal argument turns on. A distributor who buys stock outright and resells at whatever price he can get is not acting on behalf of anyone; the margin he makes is his trading profit, not a payment the supplier made him. A selling agent who books orders in his principal's name and binds the principal to the customer is acting on behalf of another person, and his percentage is commission however the invoice describes it. That is the line Bharti Cellular draws, and it is drawn by reference to the power to alter the principal's legal relationship with a third party rather than by reference to the label the parties used. Expect an officer to work from the label, and expect the answer to depend on the agreement, the risk of loss, whose name is on the sale and who bears the bad debt. If it applies to you, the first step is this: Apply two per cent to commission or brokerage credited or paid on or after 1 October 2024, and five per cent to anything credited or paid before that date. Say which side of the date your payment falls on in any reply.
Section 194H reads: "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 two 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 twenty 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 one crore rupees in case of business or fifty lakh rupees in case of profession 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." The section carries no sub-section numbering in any version read: the operative words are one unnumbered paragraph. It carries a general cross-reference footnote: "See rules 28, 28AA, 28AB, 30, 31, 31A and 37BA and Form Nos. 13, 16A, 24G, 26B, 26Q and 27A." The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. For any credit or payment made up to 31 March 2026, section 194H obliges a payer who is not an individual or a Hindu undivided family, and an individual or Hindu undivided family caught by the second proviso, to deduct two per cent on income by way of commission or brokerage paid to a resident. Deduction is at credit or payment, whichever is earlier, and a credit to a suspense account counts. The obligation does not arise at all unless the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year exceeds twenty thousand rupees. Payment to a non-resident is outside the section entirely, because the section reaches only income paid "to a resident". What changed, and when. The rate has moved four times and the section's own footnote sets out the whole run: "two" was substituted for "five" by Act No. 15 of 2024 with effect from 1 October 2024; earlier "five" was substituted for "ten" by Act No. 28 of 2016 with effect from 1 June 2016; "ten" was substituted for "five" by Act No. 22 of 2007 with effect from 1 June 2007; and "five" was substituted for "ten" by Act No. 20 of 2002 with effect from 1 June 2002. The threshold has moved three times since the section was reintroduced, and two thousand five hundred rupees was the figure the reintroduced section itself carried from 1 June 2001, not only the figure of the version omitted in 2000: it went to five thousand rupees by the Finance Act, 2010 with effect from 1 July 2010, to fifteen thousand rupees by Act No. 28 of 2016 with effect from 1 June 2016, and to twenty thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025. The turnover test in the second proviso was substituted for the old cross-reference to "the monetary limits specified under clause (a) or clause (b) of section 44AB" by Act No. 12 of 2020 with effect from 1 April 2020. The BSNL and MTNL proviso was inserted by the Finance Act, 2007 with effect from 1 June 2007. The section itself has a broken history: its footnote records that it was "Reintroduced by the Finance Act, 2001, w.e.f. 1-6-2001. Earlier section 194H was omitted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its omission, section 194H, was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991 and later on amended by the Finance Act, 1992, w.e.f. 1-6-1992." That is why the operative words carry the date 1 June 2001 on their face. What the section does not reach. Insurance commission referred to in section 194D is excluded by the operative words. Services rendered that are "professional services" are excluded by Explanation clause (i), and clause (ii) defines that expression for this section by reference to the professions notified by the Board for the purposes of section 44AA — which is not the same definition section 194J uses, so the two sections are not perfect complements and a payment can fall between them. Securities, as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, are carved out of the "asset, valuable article or thing" limb. Commission on the sale of lottery tickets has its own section, 194G, which also stands at two per cent on an amount exceeding twenty thousand rupees, both figures carrying the same two amending Acts and dates as section 194H. The principal-to-principal question. This is the section's standing fight, and the Supreme Court has decided it on one set of facts. In Bharti Cellular Ltd v Assistant Commissioner of Income Tax, Civil Appeal No. 7257 of 2011 and connected appeals, decided 28 February 2024 by Sanjiv Khanna and S.V.N. Bhatti JJ, the Court held at paragraph 42: "In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case." The test the Court applied is set out at paragraph 8 — "The essential characteristic of an agent is the legal power vested with the agent to alter his principal's legal relationship with a third party and the principal's co-relative liability to have his relations altered" — and at paragraph 9, "The substance of the relationship between the parties, notwithstanding the nomenclature given by the parties to the relationship, is of primary importance." So the question is not what the discount is called but whether the recipient can alter the payer's legal position with a third party. The Court has gone the other way on other facts: in Singapore Airlines Ltd v CIT the supplementary commission retained by travel agents was held to be commission within the section, and in CIT v Ahmedabad Stamp Vendors Association the discount to licensed stamp vendors was held to be a cash discount on a sale, so the section had no application. All three are in the library. One date sits outside the section. The CBDT's transition FAQ records that the Income-tax Act, 1961 stands repealed on 1 April 2026 and that any sum paid or credited on or after that date is governed by the corresponding withholding provision of the Income-tax Act, 2025. Serial number 1(ii) of the Table to section 393(1) covers "[a]ny income by way of commission [not being insurance commission referred to in serial number 1(i)] or brokerage" at two per cent with a threshold of twenty thousand rupees, so the substance is unchanged but the section number is not 194H.
Not applicable — this is a statement of the statutory text, with the amendment history taken from the footnote apparatus carried on the section. No judicial reasoning is involved. In the words reproduced by the source cited on this page: ""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"
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Section 194H of the Income-tax Act, 1961, as amended up to 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 194H, section 194J, section 194G, section 194D, section 44AA, section 44AB, section 40(a)(ia), section 194-I, section 393 (Act of 2025), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. For any credit or payment made up to 31 March 2026, section 194H obliges a payer who is not an individual or a Hindu undivided family, and an individual or Hindu undivided family caught by the second proviso, to deduct two per cent on income by way of commission or brokerage paid to a resident. Deduction is at credit or payment, whichever is earlier, and a credit to a suspense account counts. The obligation does not arise at all unless the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year exceeds twenty thousand rupees. Payment to a non-resident is outside the section entirely, because the section reaches only income paid "to a resident". What changed, and when. The rate has moved four times and the section's own footnote sets out the whole run: "two" was substituted for "five" by Act No. 15 of 2024 with effect from 1 October 2024; earlier "five" was substituted for "ten" by Act No. 28 of 2016 with effect from 1 June 2016; "ten" was substituted for "five" by Act No. 22 of 2007 with effect from 1 June 2007; and "five" was substituted for "ten" by Act No. 20 of 2002 with effect from 1 June 2002. The threshold has moved three times since the section was reintroduced, and two thousand five hundred rupees was the figure the reintroduced section itself carried from 1 June 2001, not only the figure of the version omitted in 2000: it went to five thousand rupees by the Finance Act, 2010 with effect from 1 July 2010, to fifteen thousand rupees by Act No. 28 of 2016 with effect from 1 June 2016, and to twenty thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025. The turnover test in the second proviso was substituted for the old cross-reference to "the monetary limits specified under clause (a) or clause (b) of section 44AB" by Act No. 12 of 2020 with effect from 1 April 2020. The BSNL and MTNL proviso was inserted by the Finance Act, 2007 with effect from 1 June 2007. The section itself has a broken history: its footnote records that it was "Reintroduced by the Finance Act, 2001, w.e.f. 1-6-2001. Earlier section 194H was omitted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its omission, section 194H, was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991 and later on amended by the Finance Act, 1992, w.e.f. 1-6-1992." That is why the operative words carry the date 1 June 2001 on their face. What the section does not reach. Insurance commission referred to in section 194D is excluded by the operative words. Services rendered that are "professional services" are excluded by Explanation clause (i), and clause (ii) defines that expression for this section by reference to the professions notified by the Board for the purposes of section 44AA — which is not the same definition section 194J uses, so the two sections are not perfect complements and a payment can fall between them. Securities, as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, are carved out of the "asset, valuable article or thing" limb. Commission on the sale of lottery tickets has its own section, 194G, which also stands at two per cent on an amount exceeding twenty thousand rupees, both figures carrying the same two amending Acts and dates as section 194H. The principal-to-principal question. This is the section's standing fight, and the Supreme Court has decided it on one set of facts. In Bharti Cellular Ltd v Assistant Commissioner of Income Tax, Civil Appeal No. 7257 of 2011 and connected appeals, decided 28 February 2024 by Sanjiv Khanna and S.V.N. Bhatti JJ, the Court held at paragraph 42: "In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case." The test the Court applied is set out at paragraph 8 — "The essential characteristic of an agent is the legal power vested with the agent to alter his principal's legal relationship with a third party and the principal's co-relative liability to have his relations altered" — and at paragraph 9, "The substance of the relationship between the parties, notwithstanding the nomenclature given by the parties to the relationship, is of primary importance." So the question is not what the discount is called but whether the recipient can alter the payer's legal position with a third party. The Court has gone the other way on other facts: in Singapore Airlines Ltd v CIT the supplementary commission retained by travel agents was held to be commission within the section, and in CIT v Ahmedabad Stamp Vendors Association the discount to licensed stamp vendors was held to be a cash discount on a sale, so the section had no application. All three are in the library. One date sits outside the section. The CBDT's transition FAQ records that the Income-tax Act, 1961 stands repealed on 1 April 2026 and that any sum paid or credited on or after that date is governed by the corresponding withholding provision of the Income-tax Act, 2025. Serial number 1(ii) of the Table to section 393(1) covers "[a]ny income by way of commission [not being insurance commission referred to in serial number 1(i)] or brokerage" at two per cent with a threshold of twenty thousand rupees, so the substance is unchanged but the section number is not 194H. It arises in TDS Defaults and How Tax Law Is Read matters, on section 194H, section 194J, section 194G, section 194D, section 44AA, section 44AB, section 40(a)(ia), section 194-I, section 393 (Act of 2025) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test the threshold as an annual aggregate to each payee, not per bill and not per month: twenty thousand rupees for the financial year from 1 April 2025, fifteen thousand rupees for any earlier year. Include amounts “likely to be credited or paid” during the year, which is what the proviso says. Do not carry the monthly test across from section 194-I — that is the section whose threshold went monthly on 1 April 2025; this one did not. Check the payee is a resident. Commission paid to a non-resident is outside section 194H altogether and goes to section 195. If you are an individual or a Hindu undivided family, read the second proviso before anything else: you are in this section only if your total sales, gross receipts or turnover from business exceeded one crore rupees, or from profession exceeded fifty lakh rupees, in the immediately preceding financial year. Before treating a margin as commission, work out whether the recipient can alter your legal relationship with the customer. If he buys on his own account, takes the risk of loss and sells in his own name, the discount is his trading margin and the Supreme Court's reasoning in Bharti Cellular is the answer to a section 194H demand; keep the distribution agreement, the invoices and the credit terms, because the question is decided on the substance of the arrangement and not on what the document is headed. Send insurance commission to section 194D and lottery ticket commission to section 194G; neither is deducted under this section. If the payee is rendering a service, ask whether it is a "professional service" as Explanation clause (ii) defines it for this section. If it is, the payment is outside section 194H and you should be looking at section 194J — and note that the two sections define professional services differently, so read both before you pick. For any sum where the earlier of credit or payment falls on or after 1 April 2026, cite serial number 1(ii) of the Table to section 393(1) of the Income-tax Act, 2025, not section 194H. Commission credited on 20 March 2026 and paid on 10 April 2026 stays under the 1961 Act, because the earlier event is the credit.
Still good law. Sixteen successive texts of the section, from 1998 to the current one, have been compared, and the record on this page is built on the two most recent, which print the same operative words. ONE WARNING ABOUT OLDER REPRODUCTIONS. Reproductions of 'section 194H' are in circulation that serve the section as it stood BEFORE it was omitted in 2000 — at ten per cent on a two-thousand-five-hundred-rupee threshold. That is not a stale version of the present section; it is a different section, the present one having been reintroduced with effect from 1 June 2001. Check that whatever text you have opens with the words 'on or after the 1st day of June, 2001' before you rely on it, and check which Act and which year it belongs to. What corroborates what. Two per cent and twenty thousand rupees appear in both of the texts relied on, and both footnote them to the same two Acts and the same two dates — two independent versions agreeing on the figure and on its source. The rate is corroborated again by the published rate table for assessment year 2026-27 and by the CBDT's section 393 material for the 2025 Act. The rate chain itself is closed: every text up to the first of the 2024 ones prints five per cent, and the later 2024 text prints two per cent with a footnote setting out the whole chain back to 2002. Each of the threshold's two earlier steps, the turnover test, the insertion and reintroduction history and the BSNL and MTNL proviso is closed by a footnote on a dated text. What is not closed. Six amending Acts are given by number because no text read names them; no Finance Act text has been read, and the Finance Act, 2026 has not been read against this section. Only Bharti Cellular was read in its own text — Singapore Airlines Ltd v CIT and CIT v Ahmedabad Stamp Vendors Association are named from the library's own records, not from a fresh reading — and no check of later treatment has been run. 'Good law' here means good law for a sum where the earlier of credit or payment falls on or before 31 March 2026. The CBDT's transition FAQ says the Income-tax Act, 1961 stands repealed on 1 April 2026; for anything later the operative provision is section 393(1) of the Income-tax Act, 2025, Table serial number 1(ii). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The current text has been checked against the next most recent, which prints the same operative words, and the amendment history is taken from the footnote apparatus carried on five earlier texts. There is no section 194H(1). Every version prints the operative words as a single unnumbered paragraph followed by three provisos and an Explanation in four clauses. Cite the section, a proviso by its ordinal, or the Explanation by its clause — never a sub-section. A WARNING ABOUT ONE COPY OF BHARTI CELLULAR. Copies of that judgment differ on the closing sentences of paragraph 42. One renders them as disposing of appeals from the High Courts of Calcutta, Rajasthan, Karnataka, Bombay and Orissa, with no mention of Delhi. Another gives Delhi and Calcutta as the judgments set aside on the assessees' appeals, and Rajasthan, Karnataka and Bombay as the ones the Revenue's dismissed appeals challenged, and records that 'Orissa' appears nowhere in the judgment; the library's own entry for the case agrees with the second. Everything quoted on this page stops at '…not applicable to the facts and circumstances of this case', and those words are confirmed on both. Do not extend the quotation into the operative order without an independently corroborated copy. What this page does not settle. Six amending Acts are named here only by their number, because no text read gives them a popular title and none of the enacted Acts has been read; the Finance Act, 2026 has likewise not been read against this section. Of the three Supreme Court decisions named, only Bharti Cellular was read in its own text — Singapore Airlines and Ahmedabad Stamp Vendors are taken from the library's own entries, and the contrast between them and Bharti Cellular should be checked against the judgments before it is argued. The boundary with section 194J is stated here in two sentences and is not worked out: Explanation clause (ii) defines 'professional services' for this section through the professions the Board notifies for section 44AA, which is not the definition section 194J uses, so a payment can fall between the two sections. One further point on the threshold, because it is the part most often applied wrongly. The proviso tests the amount 'credited or paid OR LIKELY TO BE CREDITED OR PAID during the financial year'. A payer who deducts nothing on the first bill because it is under twenty thousand rupees, knowing that the year's commission to that payee will exceed it, is in default from that first bill and not from the bill that crosses the line. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
For any credit or payment made up to 31 March 2026, section 194H obliges a payer who is not an individual or a Hindu undivided family, and an individual or Hindu undivided family caught by the second proviso, to deduct two per cent on income by way of commission or brokerage paid to a resident. Deduction is at credit or payment, whichever is earlier, and a credit to a suspense account counts. The obligation does not arise at all unless the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year exceeds twenty thousand rupees. Payment to a non-resident is outside the section entirely, because the section reaches only income paid "to a resident". What changed, and when. The rate has moved four times and the section's own footnote sets out the whole run: "two" was substituted for "five" by Act No. 15 of 2024 with effect from 1 October 2024; earlier "five" was substituted for "ten" by Act No. 28 of 2016 with effect from 1 June 2016; "ten" was substituted for "five" by Act No. 22 of 2007 with effect from 1 June 2007; and "five" was substituted for "ten" by Act No. 20 of 2002 with effect from 1 June 2002. The threshold has moved three times since the section was reintroduced, and two thousand five hundred rupees was the figure the reintroduced section itself carried from 1 June 2001, not only the figure of the version omitted in 2000: it went to five thousand rupees by the Finance Act, 2010 with effect from 1 July 2010, to fifteen thousand rupees by Act No. 28 of 2016 with effect from 1 June 2016, and to twenty thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025. The turnover test in the second proviso was substituted for the old cross-reference to "the monetary limits specified under clause (a) or clause (b) of section 44AB" by Act No. 12 of 2020 with effect from 1 April 2020. The BSNL and MTNL proviso was inserted by the Finance Act, 2007 with effect from 1 June 2007. The section itself has a broken history: its footnote records that it was "Reintroduced by the Finance Act, 2001, w.e.f. 1-6-2001. Earlier section 194H was omitted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its omission, section 194H, was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991 and later on amended by the Finance Act, 1992, w.e.f. 1-6-1992." That is why the operative words carry the date 1 June 2001 on their face. What the section does not reach. Insurance commission referred to in section 194D is excluded by the operative words. Services rendered that are "professional services" are excluded by Explanation clause (i), and clause (ii) defines that expression for this section by reference to the professions notified by the Board for the purposes of section 44AA — which is not the same definition section 194J uses, so the two sections are not perfect complements and a payment can fall between them. Securities, as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, are carved out of the "asset, valuable article or thing" limb. Commission on the sale of lottery tickets has its own section, 194G, which also stands at two per cent on an amount exceeding twenty thousand rupees, both figures carrying the same two amending Acts and dates as section 194H. The principal-to-principal question. This is the section's standing fight, and the Supreme Court has decided it on one set of facts. In Bharti Cellular Ltd v Assistant Commissioner of Income Tax, Civil Appeal No. 7257 of 2011 and connected appeals, decided 28 February 2024 by Sanjiv Khanna and S.V.N. Bhatti JJ, the Court held at paragraph 42: "In view of the aforesaid discussion, we hold that the assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case." The test the Court applied is set out at paragraph 8 — "The essential characteristic of an agent is the legal power vested with the agent to alter his principal's legal relationship with a third party and the principal's co-relative liability to have his relations altered" — and at paragraph 9, "The substance of the relationship between the parties, notwithstanding the nomenclature given by the parties to the relationship, is of primary importance." So the question is not what the discount is called but whether the recipient can alter the payer's legal position with a third party. The Court has gone the other way on other facts: in Singapore Airlines Ltd v CIT the supplementary commission retained by travel agents was held to be commission within the section, and in CIT v Ahmedabad Stamp Vendors Association the discount to licensed stamp vendors was held to be a cash discount on a sale, so the section had no application. All three are in the library. One date sits outside the section. The CBDT's transition FAQ records that the Income-tax Act, 1961 stands repealed on 1 April 2026 and that any sum paid or credited on or after that date is governed by the corresponding withholding provision of the Income-tax Act, 2025. Serial number 1(ii) of the Table to section 393(1) covers "[a]ny income by way of commission [not being insurance commission referred to in serial number 1(i)] or brokerage" at two per cent with a threshold of twenty thousand rupees, so the substance is unchanged but the section number is not 194H.
TaxSphere, “Statutory position — s.194H: two per cent on commission or brokerage paid to a resident since 1 October 2024, on a threshold that became twenty thousand rupees on 1 April 2025”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-194h-two-per-cent-and-the-twenty-thousand-threshold/ (validity last checked 2026-09-23)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
The insurer deducted tax on my agency commission even though it was under twenty thousand rupees for the year. What is the s.194D threshold, and which year does my case fall in?
I am an individual paying Rs 70,000 a month rent, and separately I have paid an interior contractor Rs 62 lakh for my own house. When exactly do I deduct, how much, and do I need a TAN?
I pay a consultant, I pay an engineering firm for technical work, and I pay my company's non-executive director a sitting fee. Do I deduct two per cent or ten per cent on each, and does the fifty thousand rupee limit apply to all three?
