TDS on Commission For FY 2026-27: Latest Rules, Rates and Threshold Limits with Different Sections

With the implementation of the new Income Tax Act, 2025, taking effect from April 1, 2026, the framework for Tax Deduction at Source (TDS) on commission payments has been significantly streamlined. For Financial Year 2026–27, the government has consolidated the provisions under Section 393(1), establishing a uniform TDS rate of 2% on most commission and brokerage payments.  

This overview sets out the updated statutory framework, including the applicable rates, the ₹20,000 threshold, and the key compliance requirements for deductors, thereby offering greater clarity during the transition to the new tax regime. 

Commission TDS Rates and Limits For FY 2026–27

The applicable rules for TDS on different forms of commission vary based on the nature of the transaction and PAN availability:  

Note: TDS Rate (without PAN / Invalid PAN) is 20% u/s 206AA 

Latest Section As Per Income Tax Act 2025

Who Must Deduct TDS? 

Corporate / Non-Individual Payers – Companies, partnership firms, LLPs, and AOPs making commission payments are required to deduct TDS when the total annual commission exceeds ₹20,000. 

Individuals & HUFs – They are liable to deduct TDS under Section 194H only if their total sales, gross receipts, or turnover from the immediately preceding financial year exceeded: 

• ₹1 crore, in the case of a business, or 
• ₹50 lakhs, in the case of a profession.

(Note: Individuals/HUFs that do not meet these audit turnover thresholds but pay commission exceeding ₹50 lakhs are governed by Section 194M instead.) 

Timing of Deduction 

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

• When the amount is credited to the payee's account, including cases where it is credited to a suspense account, or 
• When the payment is actually made, whether by cash, cheque, demand draft, or online transfer. 

Whichever date occurs first will be the trigger for TDS deduction. 

What Qualifies as Commission or Brokerage? 

This covers any payment made for services provided in connection with: 

• Buying, selling, or trading goods, real estate, assets, or services, or 
• Negotiating or facilitating transactions, such as real estate brokerage, sub-broker commissions, and trade commissions. 

In essence, any remuneration for arranging or mediating a transaction falls within the scope of commission or brokerage. 

Key Exclusions and Exemptions 

Section 194H does not apply to the following: 

• Underwriting commission/brokerage paid in connection with public issues. 
• Loan processing fees or bank charges levied directly by banking institutions. 
• Insurance commission, which is separately covered under Section 194D. 
• Lottery commission, which falls under Section 194G. 
• Professional fees / Technical services, governed separately under Section 194J at 2% or 10%, as applicable. 
• Payees who furnish a valid Form 15G or Form 15H (where eligible), or present a Lower or Nil Deduction Certificate issued under Section 197. 

Due Dates for Deposit and Return Filing 

TDS Payment Schedule: 

• For deductions made from April to February – on or before the 7th day of the following month. 
• For deductions made in March – on or before April 30.

Quarterly Return Filing (Form 26Q) Due Dates: 

• Q1 (April–June): July 31 
• Q2 (July–September): October 31 
• Q3 (October–December): January 31 
• Q4 (January–March): May 31 

FAQs 

1. How is GST handled when calculating TDS on commission? 

• TDS is deducted only on the base commission value, excluding the GST component. 
• Condition: The GST amount must be shown separately on the tax invoice. 
• Example: If an agent bills ₹1,00,000 plus ₹18,000 GST (18%), TDS at 2% is calculated on ₹1,00,000 (i.e., ₹2,000), and not on the gross amount of ₹1,18,000. 

2. Is TDS applicable if an agent deducts commission directly from sales collections before remitting the balance? 

• Yes. Even if no net cash transfer takes place and the agent retains their commission from sales receipts, the TDS liability still arises. 
• The principal must record the full gross commission expense in their books. 
• TDS at 2% must be computed on the retained commission amount and deposited with the government within the prescribed time. 

3. What is the distinction between a non-taxable "Trade Discount" and a taxable "Commission"? 

• Principal-to-Principal (Trade Discount): When goods are sold outright to distributors or stockists at a discounted price, the margin earned on resale is treated as profit, not commission. Section 194H does not apply. 
• Principal-to-Agent (Commission): When the title to the goods remains with the principal and an agent sells on their behalf for a percentage or fee, it is subject to TDS under Section 194H. 

4. How does the ₹20,000 threshold apply during the financial year? 

• The ₹20,000 limit is an annual aggregate threshold calculated per payee. 
• Below Limit: No TDS is required as long as total commission payments in the financial year remain at or below ₹20,000. 
• Crossing Limit: Once a payment causes the cumulative commission to exceed ₹20,000, TDS becomes applicable on the entire accumulated amount up to that point, as well as on all subsequent payments. 

5. Can a payee apply for a Lower or NIL TDS deduction certificate? 

• Yes, under Section 197. 
• If the payee's estimated total taxable income indicates a lower tax liability, they may apply for a Lower Deduction Certificate (LDC) by filing Form 13 on the TRACES portal. 
• Upon issuance of the certificate by the Assessing Officer, the deductor must withhold TDS at the reduced rate specified therein.