TDS on Commission in 2026: Rates, the ₹20,000 Limit and Insurance Commission

Commission is the payment most small businesses forget to put through TDS. A manufacturer paying its sales agents, a builder paying a property broker, a trader paying a buying agent in another state, an insurer paying its agents — all of them can owe tax at source on that commission. This guide is for business owners, finance teams, and the agents and brokers on the receiving end. It covers the 2% rate and the ₹20,000 limit, who has to deduct, how insurance and lottery-ticket commission differ, where commission ends and a distributor's margin begins, and what changed when the Income-tax Act, 2025 replaced section 194H on 1 April 2026. Worked examples in rupees follow each rule.

Quick answer

TDS on commission or brokerage is 2% once the total paid or credited to one resident in the tax year exceeds ₹20,000. It applies to companies, firms, LLPs and other specified persons. Insurance commission has its own row: 2% for individual agents and 10% for corporate agents, above ₹20,000. Since 1 April 2026 the rule sits in section 393(1) Table Sl. No. 1 of the Income-tax Act, 2025 (old sections 194H and 194D).

• Commission or brokerage (not insurance): 2% above ₹20,000 a year — old 194H, now Sl. 1(ii)

• Insurance commission: 2% (non-company) or 10% (domestic company) above ₹20,000 — old 194D, now Sl. 1(i)

• Commission on lottery tickets: 2% above ₹20,000 — old 194G, now s.393(3) Sl. 4

• Smaller individuals/HUFs: 2% only above ₹50 lakh a year (old 194M)

• No PAN: 20%; GST shown separately is left out

What counts as commission or brokerage

The Income-tax Act, 2025 gives commission a wide meaning. Section 402(7) says "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for three kinds of thing: services rendered (other than professional services), any services in the course of buying or selling goods, or any transaction relating to an asset, valuable article or thing other than securities. The wording is the same as the old Explanation to section 194H.

The common thread is agency. The person earning the commission is acting for someone else — finding customers, arranging a sale, negotiating a deal, collecting orders. Typical examples in Indian businesses are a sales agent paid a percentage of orders booked, a buying agent who sources yarn or spices for a trader, a property broker who arranges a lease or a sale, a travel agent's commission from an operator, a freight broker who finds loads for transporters, a commission agent (arhtiya) in an agricultural market, a referral fee paid to someone who introduced a customer, and incentives paid to dealers for promoting your products on your behalf.

What is not commission matters just as much. Professional services are excluded from the definition — a consultant's or lawyer's fee goes under the professional-fee row instead; see our guide to TDS on professional fees. Brokerage on securities is excluded by the definition, which is why stockbrokers' own trading brokerage paid by clients is not run through this row. Payments for work done to order, such as job work or printing, are contract payments. And commission paid by BSNL or MTNL to their public call office franchisees is specifically outside TDS under section 393(4) Table Sl. No. 1, a carry-over from the old law.

Is this payment commission for TDS?

Step 1

Is the payee acting on your behalf?

Step 2

Professional service? → professional-fee row

Step 3

Securities brokerage? → outside the definition

Step 4

Insurance business? → Sl. 1(i)

Step 5

Otherwise → Sl. 1(ii)

2% above ₹20,000

Distributor margins and trade discounts

The hardest boundary is between commission and a distributor's margin. If a distributor buys goods from you, pays for them and resells them at a price it chooses, the distributor is a principal, not your agent. Its profit comes from its customers, not from you, so there is nothing for you to deduct tax on. In 2024 the Supreme Court, in Bharti Cellular Ltd v ACIT, held that the discount telecom companies gave distributors on prepaid SIM cards and recharge vouchers was not commission for TDS purposes, because the relationship was principal-to-principal and the distributor's income arose only when it sold to end users.

The answer changes if your contract makes the distributor your agent: if title to the goods stays with you, if you fix the resale price and bear the credit risk, or if you pay a separate percentage on sales the distributor arranges in your name. Incentive schemes need the same care. A volume rebate shown as a reduction in the price on your sales invoice is usually treated as a discount; a separate "promotion commission" paid by cheque for achieving targets looks much more like commission. Read the agreement and the way the payment is booked before deciding.

Commission TDS at a glance (2026-27)

2%

Commission or brokerage

above ₹20,000 a year

2% / 10%

Insurance commission

non-company / company agent

2%

Lottery-ticket commission

above ₹20,000

20%

If the agent has no PAN

s.397(2)

Who has to deduct

The commission row in section 393(1) — Table Sl. No. 1(ii) — applies only when the payer is a specified person. Section 402(37) defines that as any person other than an individual or HUF (so every company, partnership firm, LLP, trust, society, co-operative and government body), plus any individual or HUF whose total sales, gross receipts or turnover exceeded ₹1 crore from business, or ₹50 lakh from a profession, in the tax year immediately before the year in which the commission is paid.

That definition matters for proprietors. A sole trader whose turnover was ₹1.4 crore in 2025-26 is a specified person for 2026-27 and must deduct 2% on commission above the limit, using a TAN. A sole trader whose turnover was ₹80 lakh is not, and has no duty under this row however much commission they pay.

Those smaller individuals and HUFs are caught by a separate, much higher limit. Under section 393(1) Table Sl. No. 6(ii), which replaced section 194M, an individual or HUF that is not otherwise required to deduct must deduct 2% when contract payments, professional fees and commission or brokerage paid to one resident in the year together exceed ₹50 lakh. This mostly reaches people paying for a large house construction or a big property transaction through a broker. They need no TAN — the tax is paid and reported through Form 141 using their PAN.

Insurance commission works differently. Table Sl. No. 1(i) says any person paying insurance commission must deduct, with no turnover test. In practice the payers are insurance companies and corporate agents passing commission to sub-agents, and all of them have TANs.

Rates and the annual threshold

The rates and limits were carried over unchanged when the 2025 Act took effect. The Income Tax Department's TDS compliance help confirms that rates and monetary thresholds for all categories of payment were retained in section 393; what changed is the section number you quote, the payment code and the form numbers.

Payment codes are taken from a practitioner rate chart (TDSMAN) and should be matched against the drop-down list when you pay the challan.

Two recent changes explain why so many websites still show older numbers. The Finance (No. 2) Act 2024 cut the commission rate from 5% to 2% for payments from 1 October 2024, and also cut the lottery-ticket rate from 5% to 2%. The insurance commission rate for non-company agents fell from 5% to 2% from 1 April 2025. Then the Finance Act 2025 raised the annual threshold for commission, insurance commission and lottery-ticket commission from ₹15,000 to ₹20,000, also from 1 April 2025. The Finance Bill 2026 explained that the rates in force for 2026-27 remain the same as for 2025-26.

How the threshold works in practice

The limit is an annual aggregate for each payee, not a per-invoice test. Section 393(1) says tax is deducted on the entire amount once the amount or aggregate exceeds the limit. So when the year's running total for an agent first crosses ₹20,000, you deduct on everything paid or credited to that agent in the year so far, not just on the part above the limit. Most accounting systems handle this by checking the cumulative total at each credit and deducting the catch-up amount from the payment that crosses the line.

Watch the timing rule as well. Tax is deducted when the commission is credited to the agent's account in your books or when it is paid, whichever is earlier. A provision booked at month-end for commission earned but not yet invoiced is a credit for this purpose, even if it is booked to a suspense or provisions account — section 393(11) treats a credit to a suspense account as a credit to the payee.

Insurance commission: the 2% and 10% rates

Commission paid for soliciting or procuring insurance business — including commission on renewals and revivals of policies — is kept out of the general commission row and taxed under Table Sl. No. 1(i). The rate in that row is "rates in force", which means the rate is set each year by Part II of the First Schedule to the Finance Act. For 2026-27, Part II says an insurance commission paid to a resident person other than a company is taxed at 2%; for a domestic company it falls under "any other income" at 10%.

So an individual LIC or health-insurance agent sees 2% withheld from commission above ₹20,000 a year, while a corporate agent such as a bank's insurance subsidiary sees 10%. An insurance broker that is a partnership firm or LLP is a "person other than a company", so it gets the lower rate.

Insurance agents also have an option most commission earners do not. Section 393(6) allows a resident individual to give the payer a written declaration that their tax for the year will be nil, and insurance commission is one of the listed incomes. The declaration is Form 121, which replaced Forms 15G and 15H from 1 April 2026. It cannot be used by an agent below 60 whose total income of that kind is above the basic exemption limit. Ordinary commission under Sl. No. 1(ii) is not on the list at all, so a sales agent cannot stop TDS with a declaration — they would need a lower deduction certificate instead.

Ordinary commission vs insurance commission

Point	Commission or brokerage (Sl. 1(ii))	Insurance commission (Sl. 1(i))
Old section	194H	194D
Who must deduct	Specified persons only	Any person
Rate	2% flat	2% non-company / 10% domestic company
Annual threshold	₹20,000	₹20,000
Nil-tax declaration (Form 121)	Not available	Available to resident individuals
Lower certificate (Form 128)	Available	Available

Old section

Commission or brokerage (Sl. 1(ii))

194H

Insurance commission (Sl. 1(i))

194D

Who must deduct

Commission or brokerage (Sl. 1(ii))

Specified persons only

Insurance commission (Sl. 1(i))

Any person

Rate

Commission or brokerage (Sl. 1(ii))

2% flat

Insurance commission (Sl. 1(i))

2% non-company / 10% domestic company

Annual threshold

Commission or brokerage (Sl. 1(ii))

₹20,000

Insurance commission (Sl. 1(i))

₹20,000

Nil-tax declaration (Form 121)

Commission or brokerage (Sl. 1(ii))

Not available

Insurance commission (Sl. 1(i))

Available to resident individuals

Lower certificate (Form 128)

Commission or brokerage (Sl. 1(ii))

Available

Insurance commission (Sl. 1(i))

Available

Worked examples in ₹

1. Crossing the limit mid-year. A private limited company pays a sales agent ₹12,000 commission in June 2026 and ₹14,000 in September. In June the year's total is below ₹20,000, so nothing is deducted. In September the total reaches ₹26,000, so the company deducts 2% on the whole ₹26,000 — ₹520 — from the September payment. The agent receives ₹13,480 in September, and the company deposits ₹520 by 7 October.

2. Property brokerage with GST. A partnership firm leases a warehouse through a broker whose invoice shows brokerage of ₹3,00,000 plus GST of ₹54,000. Under CBDT Circular 23/2017, TDS is worked out on the amount excluding GST when it is shown separately: 2% × ₹3,00,000 = ₹6,000. The firm pays the broker ₹3,48,000 and deposits ₹6,000. Our GST on commission guide explains when the broker must charge GST.

3. Individual insurance agent. An insurer pays an individual agent ₹1,80,000 of first-year and renewal commission in the year. The rate in force is 2%, so ₹3,600 is deducted across the year. If the same commission went to a corporate agent that is a domestic company, the deduction would be 10%: ₹18,000.

4. Agent with no PAN. In example 1, if the agent has not given a PAN, section 397(2) requires the higher of the normal rate or 20%. The September deduction becomes 20% × ₹26,000 = ₹5,200, and the agent cannot see the credit in their tax statement until the PAN issue is fixed.

5. A small proprietor. A garment trader with last year's turnover of ₹70 lakh pays a buying agent ₹2,40,000 in commission. The trader is not a specified person, so the 2% row does not apply. Commission, contract and professional payments to that agent are far below ₹50 lakh, so no TDS is due at all.

6. Commission to a partner. A firm credits ₹1,50,000 of commission on sales to a working partner's account. Payments by a firm to its partners have their own row since 1 April 2025 (old section 194T, now section 393(3) Table Sl. No. 7). The firm deducts 10% — ₹15,000 — because the year's total exceeds ₹20,000.

Try it — TDS on a commission payment

Payment AmountNature of Payment (Section)

194C — Contractor (Individual/HUF) · 1%194C — Contractor (Others) · 2%194J — Professional fees · 10%194J — Technical services · 2%194H — Commission / brokerage · 2%194I — Rent (Land & building) · 10%194I — Rent (Plant & machinery) · 2%194Q — Purchase of goods · 0.1%194A — Interest (other than securities) · 10%

Payee PAN

PAN availableNo PAN (20%)

Payment Amount₹26,000.00

Section194H

TDS Rate2%

TDS to Deduct₹520.00

Net Payable to Payee₹25,480.00

Open the full TDS Calculator (PDF, save, compare)

Depositing, reporting and certificates

The mechanics are the same as for other non-salary TDS. Tax deducted in a month is deposited by the 7th of the next month under the payer's TAN, using the payment code for commission (or insurance or lottery commission); tax deducted in March is due by 30 April. If you do not yet have a TAN, our TAN registration guide explains the application.

The deduction is then reported in the quarterly statement for payments to residents — Form 140, which replaced Form 26Q from 1 April 2026. Quarterly statements for tax year 2026-27 are due on 31 July, 31 October, 31 January and 31 May. The agent's certificate is Form 131 (formerly Form 16A), downloaded from TRACES and issued within 15 days from the due date of the quarterly statement. Individuals and HUFs deducting under the ₹50 lakh rule use Form 141 instead and do not file quarterly statements. Our TDS return filing guide walks through Form 140 and the correction process.

Agents should check that every deduction appears in their Annual Information Statement before they file their own return, and raise mismatches with the payer early. A wrong PAN or a missed quarter is fixed by the payer filing a correction statement on TRACES, not by the agent.

Handling commission TDS each month

1. 1

   Classify the payment

   Is the payee acting on your behalf (commission) or buying and reselling on its own account (no TDS)? Is it insurance commission, lottery commission or a payment to a partner or director?

2. 2

   Check the running total

   Add this credit to everything credited or paid to the same agent this tax year. Deduct only once the total exceeds ₹20,000 — then on the full amount.

3. 3

   Use the right base and rate

   Exclude GST shown separately. Apply 2%, or 20% without PAN, or the rate on a lower deduction certificate.

4. 4

   Deposit by the 7th

   Pay under your TAN with the commission payment code; March deductions by 30 April.

   e-Pay Tax on the e-filing portal
5. 5

   Report quarterly and issue Form 131

   File Form 140 for the quarter and download the agent's certificate from TRACES.

Deadlines, interest and the cost of getting it wrong

The penalties for missing commission TDS stack up. Under section 398(3), interest runs at 1% a month or part of a month for every month or part of a month from the date tax should have been deducted until it is deducted, and at 1.5% a month or part of a month a month from deduction until deposit. A late fee of ₹200 a day applies for each day a quarterly statement is late, capped at the TDS amount.

The bigger cost is usually in your own tax return. If TDS on commission paid to a resident is not deducted, or is deducted but not paid by the return due date, 30% of the commission expense is disallowed when your taxable profit is worked out. On ₹10 lakh of agents' commission, that is ₹3 lakh added back to profit. The expense becomes allowable in the year the TDS is finally paid.

A payer who fails to deduct is not treated as in default for the tax itself if the agent has included the commission in a return, paid the tax on it and the payer obtains an accountant's certificate to that effect under section 398(2). Interest still runs until the agent's return date, so this is a fallback, not a plan.

Common mistakes and how to fix them

Still using 5% or ₹15,000. Older ERP settings and vendor masters sometimes still carry the pre-October 2024 rate or the pre-April 2025 limit. Update them to 2% and ₹20,000. Over-deduction is not a disaster — the agent gets credit and can claim a refund — but it irritates agents and ties up their cash.

Treating every dealer incentive as commission, or none of them. Look at whether the dealer is buying on its own account. Price discounts on invoices to a principal-to-principal distributor are generally outside TDS; target-linked payouts for promoting your products on your behalf often are not.

Missing the catch-up. If you test each invoice against the limit instead of the year's total, you will under-deduct for agents paid in small, frequent amounts. Run the check on the running total per PAN.

Deducting at 2% on insurance commission paid to a company. Corporate agents that are domestic companies suffer 10%, not 2%. Get the payee type right in the master data.

Ignoring a lower deduction certificate. If an agent gives you a certificate issued on TRACES under section 395(1), you must deduct at the certificate rate, up to the amount and for the period it states. Agents whose real tax is lower than the TDS — because of expenses, losses or low income — can apply in Form 128; our lower TDS certificate guide explains the process.

Using old forms for new payments. For commission credited or paid on or after 1 April 2026, use Form 140, Form 131 and the new payment codes. Form 26Q and Form 16A apply only where the earlier of credit or payment happened on or before 31 March 2026.

How commission TDS has changed

1 October 2024

Commission (194H) and lottery-ticket commission (194G) cut from 5% to 2%

1 April 2025

Insurance commission for non-company agents cut from 5% to 2%; thresholds raised from ₹15,000 to ₹20,000

1 April 2026

Income-tax Act, 2025 in force — rules move to section 393; Form 140, 131, 141, 121 and 128 replace the old forms

What changed under the Income-tax Act, 2025

Sections 194D, 194G and 194H of the 1961 Act have no direct equivalents by those numbers in the new law. Insurance commission and ordinary commission now sit together as rows 1(i) and 1(ii) of the TDS table in section 393(1), lottery-ticket commission moved to row 4 of the table in section 393(3) (payments to any person), and the small-payer rule of section 194M became row 6(ii). The new Act came into force on 1 April 2026.

The transition rule is straightforward: if the earlier of credit or payment of the commission happened on or before 31 March 2026, the 1961 Act applies; if it happened on or after 1 April 2026, the new Act applies. Contracts with agents do not need to be amended for the change. Circulars issued under the old Act, such as Circular 23/2017 on GST, have not been formally reissued but continue to be followed.

Official links

• Income-tax Act, 2025 — Gazette textSection 393(1) Table Sl. 1(i) and 1(ii); s.393(3) Sl. 4; s.402(7)
• Finance Bill, 2026First Schedule Part II — rates in force for insurance commission
• TDS compliance helpTransition rule, interest, retained rates
• e-Filing portalPay TDS challans; Form 141 for individual payers
• TRACESForm 131 certificates, corrections, lower deduction certificates

What to do next

Pull a list of everyone you paid commission, brokerage or incentives to this year, sort it by PAN and check each running total against ₹20,000. Separate insurance and partner payments, which have their own rates, and confirm whether your distributors are agents or buyers. Then check individual payments with our free TDS calculator. For the bigger picture of deposit dates and returns, start with what TDS is and how it works.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the TDS rate on commission in 2026?

Commission and brokerage paid to a resident attract TDS at 2% once the year's total paid to that person exceeds ₹20,000. The rule is now section 393(1) Table Sl. No. 1(ii) of the Income-tax Act, 2025, which replaced section 194H from 1 April 2026. The rate was cut from 5% to 2% on 1 October 2024 and has not changed since.

What is the TDS limit for commission under section 194H?

No TDS is needed until the commission or brokerage credited or paid to one person in the tax year exceeds ₹20,000. Once the total goes past that figure, tax is deducted on the whole year's amount, not only on the excess. The limit was raised from ₹15,000 to ₹20,000 from 1 April 2025 and carried into the new Act unchanged.

What is the TDS rate on insurance commission?

Insurance commission paid to an agent who is an individual or other non-company is taxed at 2%; commission paid to a domestic company, such as a corporate agent or broker, is taxed at 10%. TDS applies only when the year's commission exceeds ₹20,000. The provision is section 393(1) Table Sl. No. 1(i), formerly section 194D.

Do individuals have to deduct TDS on commission?

Only some. An individual or HUF deducts under the commission row only if their business turnover exceeded ₹1 crore, or professional receipts exceeded ₹50 lakh, in the previous tax year. Other individuals deduct 2% only when commission, contract payments and professional fees to one person together exceed ₹50 lakh in the year, using Form 141 and their PAN.

Is TDS on commission deducted on the GST amount?

No, if GST is shown separately on the agent's invoice. CBDT Circular 23/2017 says TDS is worked out on the amount excluding the GST component when the two are indicated separately. If the invoice shows one figure including GST, deduct on the whole amount, so ask agents and brokers for invoices that show GST on its own line.

Is a discount given to a distributor treated as commission?

Not when the distributor buys the goods and resells them on its own account. Commission requires someone acting on behalf of another person. In 2024 the Supreme Court held in Bharti Cellular that discounts on prepaid SIM cards and recharge vouchers given to distributors were not commission because the relationship was principal-to-principal. Contracts that make the distributor your agent can still fall under the rule.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 12 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.The Income-tax Act, 2025 (Act No. 30 of 2025), Gazette of India Extraordinary, 21 August 2025 — Ministry of Law and Justice (Legislative Department) · accessed 12 October 2026
2. 2.Finance Bill, 2026 — First Schedule, Part II (rates for deduction of tax at source) — Ministry of Finance (Union Budget 2026-27) · accessed 12 October 2026
3. 3.Memorandum explaining the provisions in the Finance Bill, 2025 — Ministry of Finance (Union Budget 2025-26) · accessed 12 October 2026
4. 4.Memorandum explaining the provisions in the Finance (No. 2) Bill, 2024 — Ministry of Finance (Union Budget 2024-25) · accessed 12 October 2026
5. 5.TDS Compliance — e-Filing help — Income Tax Department (e-Filing portal) · accessed 12 October 2026
6. 6.TDS / TCS Rate Chart Tax Year (FY 2026-27) — TDSMAN · accessed 12 October 2026
7. 7.Flash News — Bharti Cellular Limited (Supreme Court, 2024) — KPMG · accessed 12 October 2026
8. 8.CBDT Circular No. 23/2017 — TDS on GST component — TaxGuru (reproducing CBDT circular dated 19 July 2017) · accessed 12 October 2026