TDS on Commission or Brokerage (Section 194H)

Businesses often pay commissions to sales agents, brokers, distributors, marketing partners and other intermediaries for bringing customers or completing transactions. However, these payments may attract Tax Deducted at Source (TDS), depending on their nature and the applicable provisions of the Income-tax Act.

TDS on commission or brokerage is generally deducted at 2% when the aggregate payment to a resident payee exceeds ₹20,000 during the tax year. Until 31 March 2026, this provision was covered under Section 194H of the Income-tax Act, 1961. From 1 April 2026, the corresponding provision is Section 393(1), Table Sl. No. 1(ii), of the Income-tax Act, 2025.

For businesses operating in Surat, Mumbai, Delhi and other parts of India, understanding this change is important for accurate vendor payments, accounting records and TDS returns.

Quick Answer: What Is the TDS Rate on Commission or Brokerage in 2026–27?

The TDS rate on ordinary commission or brokerage paid to a resident is 2%, provided the payer is covered by the applicable provision and the aggregate payment exceeds ₹20,000 during the tax year.

Here are the key details:

Important: Once the annual threshold is crossed, TDS applies to the entire commission amount, not merely the amount exceeding ₹20,000.

1. What Is Commission or Brokerage Under Income Tax?

Commission or brokerage generally refers to a payment made directly or indirectly to a person acting on behalf of another person for services rendered or for facilitating certain transactions.

Under the explanation to Section 194H, the definition includes payments for:

• Services rendered by an agent on behalf of another person, other than professional services.

• Services connected with buying or selling goods.

• Transactions involving assets, valuable articles or other things, excluding securities.

In simple terms, when a business appoints an intermediary to generate sales, introduce customers or facilitate a commercial transaction and pays that intermediary a commission, TDS may apply.

Common examples of commission or brokerage

• Sales commission paid to marketing representatives.

• Commission paid to business development agents.

• Brokerage paid to real estate intermediaries.

• Commission paid to distributors or sales agents acting on behalf of a business.

• Referral commission paid for introducing customers.

• Commission paid to business agents for facilitating commercial transactions.

However, the actual nature of the arrangement matters. Merely describing a payment as commission in an invoice or agreement does not automatically make it taxable under this provision.

2. TDS Rate and Threshold on Commission or Brokerage

The applicable TDS rate and threshold have changed over recent years.

For ordinary commission or brokerage payments to resident payees, the following changes are relevant:

The reduction in the TDS rate from 5% to 2% took effect on 1 October 2024. The annual threshold increased from ₹15,000 to ₹20,000 from 1 April 2025.

The Income-tax Act, 2025 has carried forward the existing rate and threshold for this category of payment.

Example: How is TDS calculated on commission?

Suppose a company appoints a sales agent and pays the following commission during the year:

Calculation:

TDS = ₹75,000 × 2% = ₹1,500.

The company deducts ₹1,500 and pays the remaining ₹73,500 to the agent.

What happens if commission is ₹20,000 or less?

If the aggregate commission paid or credited to a resident payee does not exceed ₹20,000 during the tax year, TDS under this provision is not required.

For example:

• Commission of ₹18,000: No TDS.

• Commission of ₹20,000: No TDS.

• Commission of ₹25,000: TDS of ₹500.

The threshold is calculated separately for each payee, not collectively for all agents or brokers.

3. Section 194H vs Section 393: What Changed in 2026?

The Income-tax Act, 2025 came into effect on 1 April 2026, replacing the Income-tax Act, 1961 for transactions governed by the new law.

One important change is the restructuring and consolidation of TDS provisions.

For commission and brokerage payments, the relevant references are:

The new provision is not a fresh tax on commission. It carries forward the existing rate and threshold in a reorganised legal framework.

Which section should businesses use?

• Payments or credits up to 31 March 2026: Apply Section 194H of the Income-tax Act, 1961.

• Payments or credits from 1 April 2026: Apply Section 393(1), Table Sl. No. 1(ii), of the Income-tax Act, 2025.

The applicable Act is determined by the earlier of the credit or payment date. Therefore, a commission credited in March 2026 but paid in April 2026 remains governed by the old Act.

Businesses should update their accounting software, TDS records and reporting references accordingly.

4. Who Is Required to Deduct TDS on Commission?

Under the new provision, TDS on ordinary commission or brokerage is applicable when the payment is made by a specified person to a resident payee.

A specified person includes:

• Any person other than an individual or Hindu Undivided Family (HUF).

• An individual or HUF whose business turnover exceeded ₹1 crore, or whose professional gross receipts exceeded ₹50 lakh, during the immediately preceding tax year.

Therefore, companies, LLPs, partnership firms and other non-individual entities generally fall within the requirement.

An individual or HUF that does not cross the prescribed business or professional turnover limits in the preceding tax year is generally not required to deduct TDS under this provision.

Example: A private limited company pays ₹1,00,000 as sales commission to a resident marketing agent. Since the company is a specified person and the payment exceeds the threshold, it must deduct TDS at 2%.

What about Section 194M?

Under the earlier Income-tax Act, Section 194M provided a separate TDS requirement for certain payments made by individuals and HUFs who were otherwise not covered under provisions such as Sections 194C, 194H and 194J.

For payments governed by the new Act, the corresponding provision and applicable conditions should be checked under Section 393 rather than automatically using the old section reference.

5. When Should TDS on Commission Be Deducted?

TDS must be deducted at the earlier of the following events:

• When the commission is credited to the payee's account.

• When the commission is actually paid, whether in cash, by cheque, bank transfer or another payment method.

The rule also covers amounts credited to a suspense account or another account in the payer's books.

For example, if a company records a commission liability in its books on 10 June 2026 but transfers the payment on 20 June 2026, TDS must be deducted on 10 June 2026.

Waiting until the actual payment date may result in a compliance default.

6. TDS Deposit and Return Filing Due Dates for 2026–27

Deducting TDS is only one part of compliance. Businesses must also deposit the deducted amount and file the prescribed quarterly statement.

TDS payment due dates

For regular non-government deductors, TDS is generally deposited by the 7th of the following month.

Government deductors may have different deposit procedures and deadlines.

Quarterly TDS return filing

From Tax Year 2026–27, the quarterly non-salary TDS statement is filed in Form 140, which replaces the earlier Form 26Q for payments to resident deductees other than salary.

Businesses should also issue the prescribed TDS certificate to the recipient within the applicable statutory timeline.

7. Does TDS Apply When the Payee Does Not Provide PAN?

Yes. If the recipient fails to furnish a valid PAN, a higher TDS rate generally applies.

Under the new Income-tax Act, the relevant provision is Section 397(2)(b), corresponding to Section 206AA of the earlier Act.

For ordinary commission or brokerage payments, the applicable rate is generally 20% when the payee does not provide PAN.

Example

Suppose a company pays ₹1,00,000 as commission to an agent who has not provided PAN.

Collecting and verifying PAN details during vendor onboarding helps businesses avoid unnecessary higher deductions and payment disputes.

8. Commission vs Trade Discount: Are They Treated Differently?

One of the most common TDS questions arises when businesses offer discounts or incentives to distributors and dealers.

A trade discount is not automatically treated as commission.

The distinction generally depends on the relationship between the parties and the actual commercial arrangement.

Trade discount: A distributor purchases goods from a company and resells them independently. The distributor acts on its own account and bears the relevant business risks. A genuine trade discount in a principal-to-principal transaction is generally not commission under Section 194H.

Commission: An agent sells products or facilitates transactions on behalf of a company and receives remuneration for those services. Such payment may attract TDS.

Courts have also considered contractual terms and the actual substance of the relationship when deciding whether a payment is a commission or a discount.

Businesses should maintain clear agreements, invoices and accounting descriptions to support the classification.

9. Important Exceptions and Special Cases

Not every payment described as commission or brokerage falls under the ordinary 2% TDS provision.

Consider the following situations:

• Insurance commission: Commission for soliciting or procuring insurance business is covered separately. The threshold is ₹20,000, but the applicable rate is the rate in force rather than the ordinary 2% rate.

• Brokerage on securities: Transactions relating to securities are excluded from the definition of commission or brokerage under Section 194H. Their tax treatment must be examined under the relevant provisions.

• Professional services: Payments for specified professional services may fall under the provisions governing professional fees rather than commission.

• Non-resident recipients: Payments to non-residents are governed by separate TDS provisions and applicable tax treaty conditions.

• Genuine trade discounts: Principal-to-principal trade discounts are generally not treated as commission merely because they reduce the purchase price.

The correct provision should be identified from the actual nature of the transaction, not just the payment description.

10. Is GST Included When Calculating TDS on Commission?

Where GST on services is separately indicated in the invoice and the contractual terms, CBDT Circular No. 23/2017 clarifies that TDS is generally calculated without including the separately identified GST component.

For example:

In this illustration, TDS is calculated on ₹50,000 rather than ₹59,000.

The timing and manner of deduction should also be considered, particularly where payment occurs before the invoice or before the GST component can be separately identified.

11. Penalties and Interest for Non-Compliance

Failure to deduct, deposit or report TDS correctly can create additional tax liabilities for businesses.

The important consequences include:

For transactions governed by the Income-tax Act, 2025, the relevant provisions include:

• Section 398 for consequences relating to TDS defaults.

• Section 35(b) for the applicable 30% disallowance of specified expenditure.

• Section 427 for fees relating to delayed TDS statements.

The exact consequence depends on the nature of the default and the applicable statutory conditions. A deductor may also be treated as an assessee in default.

12. Practical TDS Compliance Checklist for Businesses in 2026–27

Businesses that regularly pay commissions to agents, brokers or channel partners should follow a structured compliance process.

1. Verify the payee's PAN: Collect and validate PAN details before processing commission payments.

2. Identify the correct payment category: Check whether the amount is commission, brokerage, professional fees, insurance commission or a genuine trade discount.

3. Track the annual threshold: Monitor commission payments separately for each resident payee.

4. Deduct TDS at the correct time: Apply the earlier-of-credit-or-payment rule.

5. Check the applicable GST treatment: Review whether GST is separately identified in the invoice and agreement.

6. Use the correct section reference: Apply Section 194H for transactions governed by the old Act and Section 393(1), Table Sl. No. 1(ii), for transactions governed by the new Act.

7. Deposit TDS on time: Follow the applicable monthly payment deadlines.

8. File Form 140: Submit quarterly non-salary TDS statements within the prescribed deadlines.

9. Reconcile TDS records: Match accounting entries, challans, TDS statements and recipient records.

10. Issue TDS certificates: Provide the prescribed certificate within the applicable timeline.

For regular compliance monitoring, businesses can also use Finaccle's TDS Rate Finder for FY 2026–27 to review applicable rates, thresholds and old and new section references.

Frequently Asked Questions (FAQs)

1. What is the TDS rate on commission under Section 194H in 2026–27?

Ans: The TDS rate on ordinary commission or brokerage paid to a resident is 2%, provided the aggregate payment exceeds ₹20,000 during the tax year and the payer is covered by the applicable provision.

2. What is the TDS limit for commission or brokerage?

Ans: The annual threshold is ₹20,000 per resident payee. TDS becomes applicable when the aggregate commission or brokerage exceeds this amount.

3. Is TDS applicable on commission of ₹20,000?

Ans: No. If the total commission paid or credited to a resident payee during the tax year is exactly ₹20,000, TDS is not required under the ordinary commission or brokerage provision.

4. Is TDS applicable to commission paid to an individual?

Ans: Yes, subject to the payer being a specified person under the applicable law. An individual or HUF must generally meet the prescribed preceding-year turnover or professional receipts criteria to qualify as a specified person.

5. What is the new section for Section 194H under the Income-tax Act, 2025?

Ans: The corresponding provision is Section 393(1), Table Sl. No. 1(ii). It applies to ordinary commission or brokerage payments to resident recipients from 1 April 2026.

6. What happens if the agent does not provide PAN?

Ans: The applicable TDS rate is generally 20% under the higher-rate provision for non-furnishing of PAN

7. Is TDS applicable to commission paid to foreign agents?

Ans: Section 194H is concerned with commission or brokerage paid to residents. Payments to non-residents require a separate examination under the applicable non-resident TDS provisions and tax treaty, where relevant.

8. Is TDS applicable to dealer discounts?

Ans: Genuine trade discounts in principal-to-principal transactions are generally not treated as commission. However, payments that are actually remuneration for agency services may attract TDS.

9. When should TDS on commission be deposited?

Ans: For regular non-government deductors, TDS is generally deposited by the 7th of the following month. TDS deducted in March is generally due by 30 April.

10. Which form is used for filing TDS returns in 2026–27?

Ans: Form 140 is used for quarterly reporting of TDS on non-salary payments to residents under the Income-tax Act, 2025. It replaces the earlier Form 26Q for the corresponding category.

Need Help Reviewing Your Commission and TDS Compliance?

A commission payment may look straightforward in your accounting software, but the wrong classification can lead to incorrect TDS deductions, mismatched returns and avoidable tax notices.

Before your next payment cycle, get your commission arrangements reviewed.

Finaccle helps businesses with:

• Reviewing commission, brokerage and referral payment arrangements.

• Identifying the correct TDS rate, threshold and statutory provision.

• Checking PAN details and TDS calculations.

• Preparing and filing quarterly TDS statements.

• Reconciling TDS payments with accounting records.

• Managing ongoing income tax and corporate compliance.

Start with a Commission TDS Health Check.

Share one sample commission agreement, a recent invoice and your payment ledger. Our team can review the transaction classification, applicable TDS provision and reporting requirements for Tax Year 2026–27.

Whether your business operates in Surat, Mumbai, Delhi or elsewhere, Finaccle provides CA-supervised accounting and tax compliance support.

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