TDS on commission or brokerage paid to a resident is 2%, where the total paid or credited to one payee in the year exceeds ₹20,000. The rate fell from 5% to 2% with effect from 1 October 2024, and the threshold rose from ₹15,000 to ₹20,000 from 1 April 2025. For payments from 1 April 2026, the provision is section 393(1), table serial 1(ii), of the Income-tax Act 2025, which replaces section 194H.
Facts checked: 9 October 2026. The 2% rate and ₹20,000 threshold at table serial 1(ii) were read on the Income Tax Department's page for section 393 of the Income-tax Act 2025, and the no-PAN rule on its page for section 397. The earlier history under section 194H (5% to 2% from 1 October 2024, and ₹15,000 to ₹20,000 from 1 April 2025) was not read from a primary source and rests on Budget summaries by tax firms.
Rate and threshold at a glance
| Item | Position |
|---|---|
| Rate | 2% (earlier 5% until 30 September 2024) |
| Threshold | ₹20,000 per payee per financial year (₹15,000 until 31 March 2025) |
| Rate without PAN | 20% in the ordinary case, under section 397(2)(b)(i) of the Income-tax Act 2025 (earlier section 206AA) |
| Time of deduction | Earlier of credit to the payee's account or payment |
| Deposit | 7th of the next month; for March, 30 April |
| Return | Form 26Q, quarterly |
| 2025 Act reference | Section 393(1), table serial 1(ii): commission or brokerage, 2%, threshold ₹20,000 |
Once the year's total crosses ₹20,000, tax applies to the whole amount, including what was paid earlier in the year. The deposit and return dates are listed in the TDS return due dates guide.
Who must deduct
Companies, firms, LLPs and other non-individual payers deduct whenever the threshold is crossed. Under the 1961 Act, individuals and HUFs deducted only if their accounts were subject to tax audit in the preceding year (turnover above ₹1 crore for business or receipts above ₹50 lakh for a profession), and otherwise could fall under section 194M above ₹50 lakh a year, also at 2%. The 2025 Act table handles individuals and HUFs at serial 6(ii), with a threshold of fifty lakh rupees at 2%, for payers not otherwise required to deduct at serial 1(ii). The audit-turnover test does not appear in the table itself, and we did not read the definition of the payer at serial 1(ii), so confirm the individual and HUF position against the 2025 Act text before advising a client.
What is commission, and what is not
Commission or brokerage is a payment for acting on behalf of another in a transaction, such as selling goods, buying, or arranging a contract. Outside the section, as reported:
- Insurance commission: section 194D, a separate provision.
- Lottery ticket commission: section 194G.
- Professional or technical fees: section 194J. If the payee is really a consultant, the rate and section are different, so look at the work and the agreement, not the label.
- Securities brokerage: outside this section.
- Trade discounts between principals: a discount for buying in volume is not commission.
- Lower-deduction certificate: a payee with a valid certificate under section 197 is deducted at the certificate rate.
Use the TDS rate finder when the nature of a payment is borderline.
Common audit and compliance traps
- Credit, not payment, triggers it. A commission provision booked on 31 March must carry TDS even if the cheque goes out next quarter.
- GST on the invoice. Commentary reports that GST shown separately is left out of the base, which is the position CBDT has taken for service tax and GST in an earlier circular. Confirm this for your invoices.
- Disallowance. Missed deduction exposes 30% of the expense to disallowance in the 1961 Act; test it with the section 40(a) TDS disallowance calculator.
- Late deduction. Interest at 1% per month runs from the date tax was deductible, and 1.5% per month from deduction to deposit. Work it out in the TDS interest and late fee calculator.
Worked example (illustrative numbers)
A company pays an agent ₹15,000 in June and ₹12,000 in September, with no other payment that year. After June the total is ₹15,000, below the threshold, so no tax. In September the total becomes ₹27,000, so the company deducts 2% on the whole ₹27,000, which is ₹540, from the September payment. If the agent had given no PAN, the deduction would be 20%, which is ₹5,400. The ₹540 is deposited by 7 October and reported in the Q2 Form 26Q.
Frequently asked questions
What is the TDS rate on commission for FY 2026-27?
2% on commission or brokerage to a resident above ₹20,000 a year per payee, and 20% if the payee has no valid PAN.
Is section 194H still the section number?
For payments before 1 April 2026, yes. For 2026-27 it is section 393(1) of the Income-tax Act 2025. Reconciliations should show both references for the same payee.
Does TDS on commission apply below ₹20,000?
No, until the total for the year with that payee exceeds ₹20,000.
Is a sales incentive to a distributor commission?
Not always. Volume discounts between principals are not commission, but payments for acting as an agent are. Read the contract.
Check the deducted amounts against Form 26Q in the TDS 26Q reconciliation checker.
Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error