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The 2-Minute Summary
Whenever a specified person pays commission or brokerage to another party for services rendered, TDS at 2% applies if the total payment in the year exceeds Rs. 20,000. This is a widely applicable provision that covers real estate agents, travel agents, marketing agents, franchise fees, and any other commission-based arrangement. Two important exclusions: insurance commission (which has its own provision at Sl. No. 1(i)) and brokerage on securities transactions (which is subject to STT and handled differently) are excluded.
Example: An e-commerce company pays Rs. 60,000 in referral commissions to a marketing affiliate in Tax Year 2026-27. TDS at 2% = Rs. 1,200 is deducted before payment.
Example: A real estate developer pays Rs. 2,50,000 as brokerage to a property agent for finding a buyer. TDS at 2% = Rs. 5,000 is deducted.
Under Income Tax Act 1961: Section 194H of the Income Tax Act 1961. Now Section 393(1) Sl. No. 1(ii) under the 2025 Act. Rate and threshold unchanged.
At a Glance
| Item | Details |
| New Act Reference | Section 393(1), Sl. No. 1(ii) of Income Tax Act 2025 |
| Old Act Reference | Section 194H of Income Tax Act 1961 |
| Who Deducts | Specified person (companies, firms, entities liable to tax audit) |
| TDS Rate | 2% |
| Threshold | Rs. 20,000 aggregate per Tax Year |
| Excludes | Insurance commission (covered by Sl. 1(i)) and brokerage on securities |
| Form for TDS Certificate | Form 16A |
Who is a Specified Person Here
Under Section 393(1), Sl. No. 1(ii), the deductor is a ‘specified person,’ defined as any person other than an individual or HUF who is not subject to tax audit. In practice, this means:
- All companies (private, public, foreign)
- All firms and LLPs
- Individuals and HUFs whose business turnover exceeds Rs. 1 crore or professional receipts exceed Rs. 50 lakh in the preceding Tax Year
Individuals and HUFs below the tax audit threshold are NOT required to deduct TDS on commission payments under this provision, unless their aggregate commission payments to a single party cross Rs. 50 lakh, triggering Sl. No. 6(ii).
What Counts as Commission or Brokerage
The provision covers any payment by way of commission, not being insurance commission, or brokerage to a resident for services rendered or for any services in the course of buying or selling goods or in relation to any transaction relating to any asset, valuable article, or thing. Common examples include:
- Real estate agent commissions
- Travel agent commissions from airlines and hotels
- Marketing and referral commissions
- Franchise fees with a commission element
- Sub-agent commissions paid by a principal agent
- Discount retained by a distributor on products purchased below MRP (in certain cases treated as commission)
Discount vs Commission: A Common Confusion
A trade discount given to a dealer at the time of purchase is generally not considered commission. However, where a dealer is appointed as an agent and the margin retained is effectively remuneration for services, it may be treated as commission attracting TDS. The substance of the relationship determines the treatment.
Example: A telecom company sells SIM cards and recharge vouchers to distributors at a discount from face value. The distributor retains this as their margin. If the distributor is acting as an agent (on principal’s behalf), the margin is commission. If acting as a principal (buying and reselling), it is a trade discount. TDS applies only in the former case.
Practical Compliance Checklist
- If you are a company or firm paying commission: Track commission paid to each party annually. Once the aggregate to any single party crosses Rs. 20,000, deduct 2% TDS on the crossing amount and all subsequent payments.
- If you receive commission: Confirm TDS is being deducted at 2%. Collect Form 16A from each payer. Claim all TDS credits in your ITR.
- If the commission is paid to an insurance agent: Do not use Sl. No. 1(ii). That is insurance commission covered by Sl. No. 1(i) at rates in force.
- If you pay brokerage on a stock market transaction: STT applies to equity transactions. Brokerage on securities transactions is excluded from this provision.
Commission income flows through thousands of businesses in India every day. Real estate, travel, marketing, and distribution all rely on commission-based models. The 2% TDS rate is low, but non-deduction results in 30% disallowance of the expense, making compliance far more economical than the alternative.
