Key Takeaways
- 194H (commission or brokerage): 2% once payments to a payee cross Rs 20,000 in the year. It applies only when the payee acts on your behalf as an agent.
- 194J (professional or technical fees): 10% for professional services and 2% for technical services, above Rs 50,000 a year.
- 194O (e-commerce): the platform deducts 0.1% on the seller's gross sales. Under Section 194O(3), a transaction taxed under 194O is not subject to TDS under any other section.
- Many "commission" payments are not 194H at all: advertising agency payments fall under 194C, and trade discounts to distributors who buy and resell are outside 194H.
- From April 1, 2026, these sections sit inside Section 393 of the Income Tax Act, 2025. Commission uses payment code 1006, professional fees 1027, technical fees 1026 and e-commerce 1035.
Commission is one of the most misclassified TDS categories in Indian compliance. A Rs 50,000 payment labelled "commission" can be 194H, can really be professional fees under 194J, can be an advertising contract under 194C, or can fall outside TDS entirely because a marketplace already deducted under 194O.
Getting the section wrong costs money either way. Deduct too little and you face short deduction, interest under Section 201(1A), and a 30% disallowance of the expense under Section 40(a)(ia). Deduct too much and your vendor waits months for a refund.
This guide shows how to decide between 194H, 194J and 194O for payments described as commission in FY 2026-27, with the new Section 393 codes.
Looking for expert help with 194H TDS, 194J vs 194H, 194O commission, TDS on commission, Section 393 TDS? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
The Core Test: Is the Payee Acting on Your Behalf?
Section 194H defines "commission or brokerage" (Explanation (i)) as any payment received or receivable, directly or indirectly, by a person acting on behalf of another person 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 any asset, valuable article or thing, other than securities.
Two things follow from that definition:
- Agency is essential. If the payee is not acting on your behalf, it is not commission under 194H, whatever the invoice says.
- Professional services are carved out. A payment for professional services is not commission, even if it is calculated as a percentage.
| Relationship | Usual Section |
|---|---|
| Agent acting on behalf of the principal (procuring orders, brokering a deal) | 194H |
| Independent professional or technical service provider | 194J |
| Contractor carrying out work, including advertising | 194C |
| Seller of goods through an e-commerce platform | 194O, deducted by the platform |
| Distributor who buys goods and resells them on its own account | Usually no TDS on the discount (principal-to-principal) |
Section 194H: TDS on Commission and Brokerage
Under the Income Tax Act, 2025, Section 194H is now Section 393(1), Table Sl. No. 1(ii), with payment code 1006.
| Condition | Requirement |
|---|---|
| Who deducts | Any person paying commission to a resident, except an individual or HUF whose business turnover did not exceed Rs 1 crore (or professional receipts Rs 50 lakh) in the previous year |
| Payee | Resident |
| Threshold | Rs 20,000 aggregate in the financial year (raised from Rs 15,000 from April 1, 2025) |
| Rate | 2% (reduced from 5% from October 1, 2024) |
| No PAN | 20% |
| Excluded | Insurance commission (194D), and commission on securities transactions |
Our full Section 194H guide covers timing, deposit dates and net-payment situations.
How the Rs 20,000 Threshold Works
The threshold is tested on the aggregate for the year. Once it is crossed, TDS applies to the whole amount credited or paid in the year, not just the excess.
Example: You pay an agent Rs 15,000 in April (no TDS, still under the threshold) and Rs 10,000 in May. The year's total is now Rs 25,000, so on the May payment you deduct 2% of Rs 25,000 = Rs 500, covering the April amount as well.
Payments That Look Like Commission but Are Not 194H
| Payment | Correct Treatment | Why |
|---|---|---|
| Insurance commission | 194D (2% for payees other than companies, 10% for companies; Rs 20,000 threshold) | Specifically excluded from 194H |
| Payment to an advertising agency | 194C | CBDT Circular No. 715 (1995) treats advertising as a work contract |
| Discount allowed by a TV channel or newspaper to an advertising agency | No 194H | CBDT Circular No. 715 (1995) |
| Trade discount to a distributor who buys and resells | No 194H | Principal-to-principal sale, as the Supreme Court held in Bharti Cellular Ltd v. ACIT (2024) for prepaid SIM distributors |
| Consultancy calculated as a percentage | 194J | Professional services are carved out of the 194H definition |
Section 194J: Professional and Technical Fees
Section 194J now sits under Section 393(1), with payment code 1027 for professional services and 1026 for technical services.
| Payment Type | Rate | Threshold |
|---|---|---|
| Professional services (legal, medical, engineering, architecture, accountancy, interior decoration and other notified professions) | 10% | Rs 50,000 a year |
| Fees for technical services (not professional services) | 2% | Rs 50,000 a year |
| Royalty for sale, distribution or exhibition of films | 2% | Rs 50,000 a year |
| Other royalty | 10% | Rs 50,000 a year |
| Director's fees (not salary) | 10% | No threshold |
| No PAN | 20% |
The Rs 50,000 threshold applies from April 1, 2025. See our Section 194J guide for the full list.
Why 194H and 194J Get Confused
Both can be percentage-based, and both involve "services". The difference is what the payee does:
| Factor | Points to 194H | Points to 194J |
|---|---|---|
| Role | Acts on your behalf with third parties | Delivers a service to you |
| Typical work | Procuring orders, finding buyers, brokering a deal | Advice, legal work, design, technical or management services |
| Output | A completed transaction with a third party | Expertise, a report, a design, a system |
| Example payees | Sales agent, property broker, loan DSA | Chartered accountant, lawyer, architect, IT consultant |
A useful check: remove the third party. If there is no buyer, seller or counterparty that the payee deals with for you, the payment is unlikely to be commission.
Section 194O: E-Commerce Operator TDS
Section 194O now sits under Section 393(1), with payment code 1035.
| Aspect | Details |
|---|---|
| Who deducts | The e-commerce operator (Amazon, Flipkart and similar platforms) |
| On whom | The e-commerce participant (seller) |
| Base | Gross amount of sales or services facilitated through the platform |
| Rate | 0.1% (reduced from 1% from October 1, 2024) |
| Threshold | Rs 5 lakh a year for individual or HUF sellers who furnish PAN or Aadhaar; no threshold for others |
| No PAN or Aadhaar | 5% |
The 194O(3) Override
Section 194O(3) says that a transaction on which the e-commerce operator has deducted tax under 194O, or which is not liable to deduction because of the Rs 5 lakh threshold, is not liable to TDS under any other provision of the Chapter. The proviso excludes amounts the operator receives for hosting advertisements or other services not connected with the sale.
What this means for sellers: the platform's commission and fees on a sale already covered by 194O are part of that same transaction, so the seller does not deduct TDS under 194H on them.
| Particulars | Amount |
|---|---|
| Gross sales through the platform | Rs 10,00,000 |
| Platform commission (10%) | Rs 1,00,000 |
| TDS by the platform under 194O (0.1% of Rs 10,00,000) | Rs 1,000 |
| TDS by the seller under 194H on the Rs 1,00,000 commission | Nil, because of Section 194O(3) |
Where 194O(3) does not help: sponsored product ads, storage or other services not connected with a sale. Those payments are tested on their own under 194C or 194J. For the full e-commerce picture, see 194O vs 194H for marketplace sellers.
Side-by-Side Comparison
| Parameter | 194H | 194J | 194O |
|---|---|---|---|
| Income Tax Act, 2025 | Section 393(1), Sl. No. 1(ii) | Section 393(1) | Section 393(1) |
| Payment Code | 1006 | 1027 (professional) / 1026 (technical) | 1035 |
| Who Deducts | Payer of commission | Payer of the fees | E-commerce operator |
| Rate | 2% | 10% professional / 2% technical | 0.1% |
| Threshold | Rs 20,000 a year | Rs 50,000 a year | Rs 5 lakh a year (individual or HUF sellers only) |
| No PAN | 20% | 20% | 5% |
| Nature | Agent acting on your behalf | Professional or technical service to you | Sale facilitated through a platform |
Worked Examples
Example 1: Sales Agent Paid on Orders Procured
Facts: A manufacturer pays a sales agent Rs 2,00,000 as 3% commission on orders the agent procured from customers. The agent never owns the goods.
Answer: 194H. The agent acts on the manufacturer's behalf with customers. TDS at 2% = Rs 4,000.
Example 2: Distributor Earning a Margin
Facts: The same manufacturer sells goods to a distributor at a 12% discount to the retail price. The distributor pays for the goods and resells them on its own account.
Answer: No 194H. The distributor is a buyer, not an agent, so the margin is not commission. This is the principle the Supreme Court applied in Bharti Cellular (2024). Separately, the distributor may have to deduct TDS under 194Q on its purchases if its turnover exceeds Rs 10 crore and its purchases from the manufacturer exceed Rs 50 lakh in the year.
Example 3: Advertising Agency
Facts: A company pays an advertising agency Rs 5,00,000 to create and run a campaign.
Answer: 194C, not 194H or 194J. CBDT Circular No. 715 treats payments to advertising agencies as payments for work. TDS is 1% if the agency is an individual or HUF, 2% otherwise: Rs 10,000 for a company agency.
Example 4: Marketplace Seller
Facts: A seller has Rs 10,00,000 of gross sales on a marketplace, which charges Rs 1,00,000 in commission and fees on those sales.
Answer: The platform deducts Rs 1,000 under 194O. The seller deducts nothing under 194H on the commission, because of Section 194O(3).
Example 5: Property Broker
Facts: A private limited company buying an office pays a broker Rs 50,000.
Answer: 194H. TDS at 2% = Rs 1,000. If the buyer were a salaried individual buying a home, 194H would not apply. An individual not covered by 194H deducts only under Section 194M, and only when commission, contract and professional payments together exceed Rs 50 lakh in the year. See our Section 194M guide.
What Happens If You Pick the Wrong Section?
| Mistake | Consequence | Fix |
|---|---|---|
| Deducted at a lower rate than required (for example 2% under 194H where 194J at 10% applied) | Short deduction demand for the difference, interest under Section 201(1A), and 30% disallowance under Section 40(a)(ia) on the undeducted part | Deposit the shortfall with interest and file a correction statement |
| Deducted at a higher rate (for example 10% under 194J where 194H at 2% applied) | No default for you, but the payee's money is locked up until their refund | File a correction statement if the section code was wrong; the payee claims full credit |
| Did not deduct at all | Full demand, interest, and 30% disallowance until TDS is paid | Deduct and deposit as soon as possible |
Interest under Section 201(1A) is 1% per month from the date the tax was deductible until it is deducted, and 1.5% per month from deduction until deposit. See our Section 201(1A) guide. Corrections are filed on TRACES, as explained in our TDS return correction guide.
The Section 393 Framework from April 1, 2026
The Income Tax Act, 2025 replaced the 1961 Act from April 1, 2026. Non-salary TDS on residents is consolidated under Section 393, and each nature of payment has a payment code used in challans and quarterly returns.
| Old Section (1961 Act) | Nature | Payment Code (2025 Act) |
|---|---|---|
| 194D | Insurance commission | 1005 |
| 194H | Commission or brokerage | 1006 |
| 194C | Contract payments | 1023 (individual or HUF payee) / 1024 (others) |
| 194J | Fees for technical services | 1026 |
| 194J | Fees for professional services | 1027 |
| 194O | E-commerce operator | 1035 |
For payments credited from April 1, 2026, use the new payment code on the challan and report the deduction in Form 140 (which replaced Form 26Q). Payments credited up to March 31, 2026 stay under the 1961 Act sections. Rates and thresholds carried over unchanged. See our payment code guide for the full list.
Key Takeaways
| Point | Detail |
|---|---|
| 194H | 2% above Rs 20,000; only when the payee acts on your behalf |
| 194J | 10% professional / 2% technical above Rs 50,000 |
| 194O | 0.1% deducted by the platform on gross sales |
| 194O(3) | No other TDS on a transaction covered by 194O, including 194H on platform commission |
| Advertising agencies | 194C, not 194H or 194J |
| Distributor margins | Principal-to-principal, no 194H (Bharti Cellular, 2024) |
| Individual buyers | No 194H; 194M only above Rs 50 lakh |
| Wrong section | Short deduction, 201(1A) interest, 30% disallowance |
| New codes | 194H 1006; 194J 1027 / 1026; 194O 1035; report in Form 140 |
Where Tax Garden Helps
Misclassifying commission is one of the most common triggers for TDS short deduction notices. The cost is not just interest: a 30% disallowance of the expense can add a real tax bill on top.
Tax Garden's team helps you:
- Map every vendor payment to the right section and Section 393 payment code
- Separate true agency commission from distributor margins, professional fees and advertising contracts
- Apply the 194O(3) override correctly for marketplace fees
- File TDS correction statements for past misclassifications
- Respond to short deduction and interest demands
Looking for expert help with 194H TDS, 194J vs 194H, 194O commission, TDS on commission, Section 393 TDS? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
194H vs 194J vs 194O: Frequently Asked Questions
What is the TDS rate under Section 194H for FY 2026-27?
2% on commission or brokerage paid to a resident once the aggregate for the year exceeds Rs 20,000. Without PAN, the rate is 20%. Under the Income Tax Act, 2025, it falls under Section 393(1), Table Sl. No. 1(ii), with payment code 1006.
What is the difference between 194H and 194J?
194H applies when the payee acts on your behalf with third parties, such as a sales agent procuring orders or a broker finding a buyer. 194J applies when the payee provides professional or technical services to you, such as a lawyer, CA, architect or IT consultant. The 194H definition specifically excludes professional services.
Does 194H apply to commission charged by Amazon or Flipkart?
No, for commission and fees on sales already covered by 194O. Section 194O(3) says a transaction on which the e-commerce operator deducted TDS under 194O is not liable to TDS under any other provision. Charges for advertising or services not connected with a sale are outside this override.
Is TDS deducted under 194H on payments to advertising agencies?
No. CBDT Circular No. 715 (1995) treats payments to advertising agencies as payments for work under Section 194C, at 1% for individual or HUF agencies and 2% for others.
Is a distributor's margin or trade discount commission under 194H?
Not when the distributor buys the goods and resells them on its own account. That is a principal-to-principal relationship, and the Supreme Court held in Bharti Cellular Ltd v. ACIT (2024) that 194H does not apply to such discounts.
What is the threshold for TDS under Section 194H?
Rs 20,000 aggregate per payee in the financial year, raised from Rs 15,000 from April 1, 2025. Once crossed, TDS applies to the whole amount for the year, not just the excess.
What are the new payment codes for 194H, 194J and 194O?
Under Section 393 of the Income Tax Act, 2025: commission or brokerage (old 194H) is code 1006, fees for professional services (old 194J) is 1027, fees for technical services (old 194J) is 1026, and e-commerce operator deduction (old 194O) is 1035. Insurance commission (old 194D) is 1005.
Does a salaried individual buying a flat deduct TDS on brokerage?
Not under 194H, which excludes individuals and HUFs below the business audit turnover limits. Such an individual deducts only under Section 194M, at 2%, if commission, contract and professional payments together exceed Rs 50 lakh in the year.
Is insurance commission covered under 194H?
No. Insurance commission falls under Section 194D (payment code 1005 under the 2025 Act), at 2% for payees other than companies and 10% for companies, above Rs 20,000 a year.
What happens if I deduct TDS under the wrong section?
If you deducted less than required, you face a demand for the shortfall, interest under Section 201(1A) and a 30% disallowance of the expense under Section 40(a)(ia) until it is fixed. If you deducted more, there is no default for you, but the payee waits for a refund. Correct the section code through a TDS correction statement on TRACES.
Sources: Sections 40(a)(ia), 194C, 194D, 194H, 194J, 194M, 194O and 201(1A) of the Income Tax Act, 1961; Section 393 of the Income Tax Act, 2025 and the Section 393 payment code list; Finance (No. 2) Act, 2024 and Finance Act, 2025 rate and threshold changes; CBDT Circular No. 715 dated August 8, 1995; Supreme Court in Bharti Cellular Ltd v. ACIT (2024). Verify current rates and codes on incometax.gov.in before acting. This article is general information, not professional advice.
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