CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194H — Commission or Brokerage (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Heavily litigated; recently settled at the apex level on the central question.
Finance Act, 2026: No amendment.
Mechanism: A specified person paying a resident commission or brokerage (other than insurance commission) deducts tax at the earlier of credit or payment where the annual aggregate exceeds the threshold; 'commission' is read to include indirect payment, but requires an agency relationship.
Litigation profile: Treatise-grade. The decisive question — agency versus principal-to-principal — is now governed by Bharti Airtel (2024) and Singapore Airlines (2022) at the Supreme Court.
A. SECTION COMMENTARY
Section 194H requires any person (other than an individual/HUF below the section 44AB limits) responsible for paying a resident any income by way of commission (not being insurance commission under section 194D) or brokerage, to deduct tax at the time of credit or payment, whichever is earlier, where the aggregate in a financial year exceeds the threshold. 'Commission or brokerage' is defined inclusively to cover any payment received or receivable, directly or indirectly, by a person acting on behalf of another for services rendered (other than professional services) or in the course of buying or selling goods or in relation to any transaction relating to any asset, valuable article or thing (not being securities).
Agency is the indispensable ingredient
The unifying principle running through the entire body of section 194H law is that the payment must be for an agency service — a payment to a person 'acting on behalf of another'. Where the relationship between the parties is one of principal-to-principal (sale and resale on one's own account), the margin earned is a trade discount or profit, not 'commission', and section 194H does not apply. Where, on the other hand, the person renders a service on behalf of the payer and is remunerated for it, the payment is commission even if it is received indirectly (by retention out of collections) rather than paid over directly.
Direct or indirect — the expansive reading
The definition's words 'directly or indirectly' have been read expansively: commission retained by an agent out of amounts it collects for the principal (rather than paid out by the principal) is still 'commission' on which the principal must account for deduction, provided the agency relationship and the quantum are ascertainable. The recurring battleground is therefore the characterisation of the relationship (agency versus sale) and, where agency is found, the ascertainability of the commission.
Boundaries and consequences
Section 194H must be distinguished from section 194D (insurance commission, separately provided), section 194G (commission on lottery tickets) and section 194J (professional/technical services, expressly excluded from 'commission'). The consequences of default are the Chapter's common ones — sections 201(1)/(1A), 271C and disallowance under section 40(a)(ia) — subject to the rule against double recovery where the payee has paid the tax.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194H. 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 86-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.
C. AUTHORITIES
The authorities are arranged around the single decisive question — agency versus principal-to-principal — and the direct/indirect reach of 'commission'. The recent apex decisions (Bharti Airtel, 2024; Singapore Airlines, 2022) are set out, with the foundational stamp-vendor and advertising-agency cases. All citations are web-verified.
Cluster 1 — No agency, no commission: discount in a sale
CIT v. Ahmedabad Stamp Vendors Association (2012) 348 ITR 378 (SC)
Issue: Whether the discount (0.50%–4%) allowed to licensed stamp vendors on bulk purchase of stamp papers is 'commission' attracting section 194H.
Held: No. The transaction was a sale of stamps to the vendor on a principal-to-principal basis; the discount was a cash/trade discount, not commission for an agency service. The element of agency, indispensable to section 194H, was absent.
Significance: The foundational statement that a discount in a sale is not commission — agency is the sine qua non of section 194H.
Bharti Cellular Ltd. (now Bharti Airtel Ltd.) v. ACIT (2024) (Supreme Court, 28 February 2024)
Issue: Whether a telecom operator must deduct under section 194H on the 'discount' given to its distributors/franchisees on prepaid SIM cards and recharge vouchers.
Held: No. The relationship between the telecom operator and its distributors is not one of principal and agent but of independent businesses dealing on a principal-to-principal basis; the operator neither pays nor credits the distributor with any 'commission'. Section 194H is therefore not attracted. The Court distinguished Singapore Airlines on the footing that there the agency relationship and the quantum of commission were not in dispute.
Significance: The leading modern authority — it settles the long-running telecom-distributor controversy in favour of the operators and re-affirms agency as the test.
Cluster 2 — Agency present: indirect commission still caught
Singapore Airlines Ltd. v. CIT (2022) 449 ITR 203 (SC)
Issue: Whether the 'supplementary commission' earned by travel agents (the excess of the actual fare collected over the net fare payable to the airline) is 'commission' under section 194H, obliging the airline to deduct.
Held: Yes. The travel agents acted on behalf of the airline under an agency relationship; the word 'commission' is to be read expansively to include indirect payment (here, the amount retained by the agent). The airline was liable to deduct under section 194H. (The Delhi High Court in Singapore Airlines, 319 ITR 29, was affirmed; the Bombay High Court in Qatar Airways was overruled.)
Significance: Confirms that, where agency exists, commission retained indirectly is within section 194H — the counterpoint to Bharti Airtel.
Director, Prasar Bharati v. CIT (2018) 403 ITR 161 (SC)
Issue: Whether commission paid by Doordarshan/Prasar Bharati to advertising agencies attracts section 194H.
Held: Yes. The agencies rendered services on behalf of Prasar Bharati in canvassing/booking advertisements and were paid commission for it; the relationship was one of agency and section 194H applied. Characterisation follows the true nature of the arrangement, not its label.
Significance: A clear application to advertising-agency commission and a statement of the substance-over-form approach.
Cluster 3 — Boundary and default (cognate)
CIT v. Idea Cellular Ltd. (2010) 325 ITR 148 (Del) — contrast (now read with Bharti Airtel, 2024)
Principle: The Delhi High Court had earlier held that the discount to prepaid distributors was commission attracting section 194H. The contrary view of the Supreme Court in Bharti Airtel (2024) now governs; Idea Cellular is noted to mark the evolution of the controversy.
Use: Shows the High Court divergence that the 2024 Supreme Court decision resolved.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Caps the deductor's exposure for a failure to deduct under section 194H.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194H — Commission or Brokerage (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Heavily litigated; recently settled at the apex level on the central question.
Finance Act, 2026: No amendment.
Mechanism: A specified person paying a resident commission or brokerage (other than insurance commission) deducts tax at the earlier of credit or payment where the annual aggregate exceeds the threshold; 'commission' is read to include indirect payment, but requires an agency relationship.
Litigation profile: Treatise-grade. The decisive question — agency versus principal-to-principal — is now governed by Bharti Airtel (2024) and Singapore Airlines (2022) at the Supreme Court.
A. SECTION COMMENTARY
Section 194H requires any person (other than an individual/HUF below the section 44AB limits) responsible for paying a resident any income by way of commission (not being insurance commission under section 194D) or brokerage, to deduct tax at the time of credit or payment, whichever is earlier, where the aggregate in a financial year exceeds the threshold. 'Commission or brokerage' is defined inclusively to cover any payment received or receivable, directly or indirectly, by a person acting on behalf of another for services rendered (other than professional services) or in the course of buying or selling goods or in relation to any transaction relating to any asset, valuable article or thing (not being securities).
Agency is the indispensable ingredient
The unifying principle running through the entire body of section 194H law is that the payment must be for an agency service — a payment to a person 'acting on behalf of another'. Where the relationship between the parties is one of principal-to-principal (sale and resale on one's own account), the margin earned is a trade discount or profit, not 'commission', and section 194H does not apply. Where, on the other hand, the person renders a service on behalf of the payer and is remunerated for it, the payment is commission even if it is received indirectly (by retention out of collections) rather than paid over directly.
Direct or indirect — the expansive reading
The definition's words 'directly or indirectly' have been read expansively: commission retained by an agent out of amounts it collects for the principal (rather than paid out by the principal) is still 'commission' on which the principal must account for deduction, provided the agency relationship and the quantum are ascertainable. The recurring battleground is therefore the characterisation of the relationship (agency versus sale) and, where agency is found, the ascertainability of the commission.
Boundaries and consequences
Section 194H must be distinguished from section 194D (insurance commission, separately provided), section 194G (commission on lottery tickets) and section 194J (professional/technical services, expressly excluded from 'commission'). The consequences of default are the Chapter's common ones — sections 201(1)/(1A), 271C and disallowance under section 40(a)(ia) — subject to the rule against double recovery where the payee has paid the tax.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194H. 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 86-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.
C. AUTHORITIES
The authorities are arranged around the single decisive question — agency versus principal-to-principal — and the direct/indirect reach of 'commission'. The recent apex decisions (Bharti Airtel, 2024; Singapore Airlines, 2022) are set out, with the foundational stamp-vendor and advertising-agency cases. All citations are web-verified.
Cluster 1 — No agency, no commission: discount in a sale
CIT v. Ahmedabad Stamp Vendors Association (2012) 348 ITR 378 (SC)
Issue: Whether the discount (0.50%–4%) allowed to licensed stamp vendors on bulk purchase of stamp papers is 'commission' attracting section 194H.
Held: No. The transaction was a sale of stamps to the vendor on a principal-to-principal basis; the discount was a cash/trade discount, not commission for an agency service. The element of agency, indispensable to section 194H, was absent.
Significance: The foundational statement that a discount in a sale is not commission — agency is the sine qua non of section 194H.
Bharti Cellular Ltd. (now Bharti Airtel Ltd.) v. ACIT (2024) (Supreme Court, 28 February 2024)
Issue: Whether a telecom operator must deduct under section 194H on the 'discount' given to its distributors/franchisees on prepaid SIM cards and recharge vouchers.
Held: No. The relationship between the telecom operator and its distributors is not one of principal and agent but of independent businesses dealing on a principal-to-principal basis; the operator neither pays nor credits the distributor with any 'commission'. Section 194H is therefore not attracted. The Court distinguished Singapore Airlines on the footing that there the agency relationship and the quantum of commission were not in dispute.
Significance: The leading modern authority — it settles the long-running telecom-distributor controversy in favour of the operators and re-affirms agency as the test.
Cluster 2 — Agency present: indirect commission still caught
Singapore Airlines Ltd. v. CIT (2022) 449 ITR 203 (SC)
Issue: Whether the 'supplementary commission' earned by travel agents (the excess of the actual fare collected over the net fare payable to the airline) is 'commission' under section 194H, obliging the airline to deduct.
Held: Yes. The travel agents acted on behalf of the airline under an agency relationship; the word 'commission' is to be read expansively to include indirect payment (here, the amount retained by the agent). The airline was liable to deduct under section 194H. (The Delhi High Court in Singapore Airlines, 319 ITR 29, was affirmed; the Bombay High Court in Qatar Airways was overruled.)
Significance: Confirms that, where agency exists, commission retained indirectly is within section 194H — the counterpoint to Bharti Airtel.
Director, Prasar Bharati v. CIT (2018) 403 ITR 161 (SC)
Issue: Whether commission paid by Doordarshan/Prasar Bharati to advertising agencies attracts section 194H.
Held: Yes. The agencies rendered services on behalf of Prasar Bharati in canvassing/booking advertisements and were paid commission for it; the relationship was one of agency and section 194H applied. Characterisation follows the true nature of the arrangement, not its label.
Significance: A clear application to advertising-agency commission and a statement of the substance-over-form approach.
Cluster 3 — Boundary and default (cognate)
CIT v. Idea Cellular Ltd. (2010) 325 ITR 148 (Del) — contrast (now read with Bharti Airtel, 2024)
Principle: The Delhi High Court had earlier held that the discount to prepaid distributors was commission attracting section 194H. The contrary view of the Supreme Court in Bharti Airtel (2024) now governs; Idea Cellular is noted to mark the evolution of the controversy.
Use: Shows the High Court divergence that the 2024 Supreme Court decision resolved.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Caps the deductor's exposure for a failure to deduct under section 194H.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.