C.K. Gupta
In short
TDS on commission and brokerage is deducted at 2% — reduced from 5% with effect from 1 October 2024 — once the total amount paid or credited to a resident payee in a year exceeds ₹20,000, a threshold raised from ₹15,000 with effect from 1 April 2025. Under the Income-tax Act, 2025 the provision sits in Section 393(1), Table Serial 1(ii) (old Section 194H). Without the payee’s PAN, the rate jumps to 20% under Section 397(2). Once the threshold is crossed, TDS applies to the whole commission, not just the excess.
Verified October 2026 · TaxGST.in
A small trading firm paid its sales agent ₹18,000 in April, ₹12,000 in August and ₹25,000 in January — ₹55,000 across the year — and deducted nothing, because no single payment crossed ₹20,000. That is the classic commission-TDS error. The threshold is tested on the aggregate paid or credited to that payee in the whole financial year, not payment by payment. By January the firm owed TDS on the full ₹55,000, and the scramble to recover it from the agent began. If you pay commission to anyone, this is the rule to get right before the year ends.
For the wider TDS picture, see the TDS hub’s rate and return guides and the full TDS rate chart for tax year 2026-27. Commission is only one TDS family: rent TDS under Section 393 explained covers the rent table, and TDS on FD interest and its new thresholds covers the interest table. After deducting, the payee’s certificate now comes as how Form 131 replaced Form 16A for TDS certificates, and if tax you deducted never shows up in the payee’s records, what to do when TDS deducted is missing from your 26AS or AIS sets out the correction path.
What counts as commission or brokerage
Commission or brokerage means any payment received or receivable, directly or indirectly, by a person acting on behalf of another person — for services in the course of buying or selling goods, or for any transaction relating to an asset or valuable article. The classic cases are a sales agent’s commission, a broker’s fee on a deal, and an agency commission on bookings. Insurance commission is expressly excluded, because it has its own provision (old Section 194D). Specified professional services and transactions in securities are also outside this head — those fall under the professional-fees and other tables in Section 393, not here. And salary is never commission: payments to employees follow the salary TDS route, not this one.
Who must deduct? Any person, other than an individual or a Hindu Undivided Family, who pays commission or brokerage to a resident. Individuals and HUFs are covered only when their accounts are subject to audit — the same carve-out that runs through most TDS provisions. In practice, that means companies, firms, LLPs and audited proprietors deduct; a householder paying a broker for a flat does not.
The rate and threshold — and the two changes everyone misses
| Before | Now | |
|---|---|---|
| Standard rate (with PAN) | 5% | 2% from 1 October 2024 |
| Annual threshold per payee | ₹15,000 | ₹20,000 from 1 April 2025 |
| No-PAN rate | 20% | 20% under Section 397(2) |
Two old articles still circulate quoting 5% and ₹15,000, and accounting software with 5% hard-coded is still deducting too much. If your system still says 5%, fix it before the next payment run: over-deduction is not a favour to the payee, it is a reconciliation headache and a refund the payee must wait for.
Worked examples, all for one payee in one financial year. Pay ₹19,000 in total: no TDS, below the threshold. Pay ₹50,000: TDS is 2% of the full ₹50,000, which is ₹1,000 — not 2% of the ₹30,000 above the threshold. Here’s the catch that trips up even careful accountants: the threshold decides whether TDS applies at all, but once it applies, it applies to the whole amount. Pay ₹50,000 to an agent who never gave you a PAN: TDS is 20%, which is ₹10,000, and no threshold shelters any part of it in practice.
When to deduct, and what happens next
Deduct at the earlier of crediting the commission to the payee’s account or actually paying it. Crediting in your books in March and paying in April does not push the deduction into April — the obligation arises at credit. Deposit the TDS by the 7th of the following month (30 April for March deductions), file the quarterly TDS return — Form 140 for non-salary TDS under the Income-tax Act, 2025 — and issue the TDS certificate to the payee, now in Form 131. The payee claims the TDS as a credit against their own tax when they file; it appears in their AIS and TDS statement, which is why a deductor who files late or wrong creates a problem that lands on someone else’s return.
Two exemptions to know. No deduction is required for commission payable by BSNL or MTNL to their public call office franchisees — a narrow, specific carve-out, not a general small-agent exemption. And if you hold a lower-deduction certificate for the payee (Section 197 route, now under the 2025 Act’s corresponding provision), deduct at the certified rate instead of 2% — but only for the payments and period the certificate covers.
Deductor’s checklist
- Keep a running per-payee total for the year. The threshold is per payee, per year — a new payee starts at zero, and a payee paid by two group companies is tested separately for each payer.
- Collect the PAN before the first payment, not at year end. A missing PAN turns a 2% deduction into a 20% one.
- Update your software: 2%, not 5%; ₹20,000, not ₹15,000.
- Deduct on credit, not only on payment. A March credit is a March obligation.
- Deposit by the 7th of next month and file Form 140 for the quarter — late deposit draws interest, and a late return draws a fee.
- Reconcile: the total TDS in your return must match what the payees see in their TDS statements, or expect queries from both sides.
FAQs
Is the TDS rate on commission still 5%?
No. The standard rate was reduced to 2% with effect from 1 October 2024. Articles quoting 5% are out of date.
If annual commission is exactly ₹20,000, is TDS due?
No. Deduction applies when the aggregate exceeds ₹20,000. At exactly ₹20,000, no TDS is required under the threshold rule.
Is TDS charged only on the amount above ₹20,000?
No. Once the aggregate crosses ₹20,000, TDS at 2% applies to the whole commission amount for the year.
Does an individual paying a property broker have to deduct TDS?
Not under this provision, unless the individual’s accounts are subject to audit. Property purchases have their own separate TDS route for buyers above ₹50 lakh.
What if the agent gives their PAN late, after I already deducted 20%?
The 20% already deducted stands for those payments; future payments, once the PAN is on record, are deducted at 2%. The agent recovers any excess by claiming credit in their return.
Sources
Section 194H of the Income-tax Act, 1961, as consolidated in Section 393(1), Table Serial 1(ii) of the Income-tax Act, 2025 (Income Tax Department) — TDS on commission or brokerage paid to a resident, excluding insurance commission under the separate insurance-commission provision. Rate reduction from 5% to 2% with effect from 1 October 2024 and threshold increase from ₹15,000 to ₹20,000 with effect from 1 April 2025, per the Finance Act amendments reflected in the Income Tax Department’s TDS rate framework. No-PAN rate of 20% under Section 397(2) of the Income-tax Act, 2025 (old Section 206AA). Quarterly non-salary TDS return in Form 140 and TDS certificate in Form 131 under the Income-tax Act, 2025 framework.
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