The year 2025 marked a significant milestone in India’s direct tax framework with the enactment of the Income-tax Act, 2025, which replaces the six-decade-old Income-tax Act, 1961, effective from 1st April 2026. The primary objective of the new legislation is not to overhaul tax policy, but to reorganize and present existing provisions in a more logical, structured, and reader-friendly manner.
In this article, we will try to understand is there any change in the Income Tax Act, 2025 with respect to Tax Deducted at Source (TDS) provisions contained in the Income Tax Act, 1961, specifically for the provisions for TDS on commission.
Broadly, there is no major change in policy but new Act presents the TDS provisions in a simplified and tabular manner. All the TDS sections (Section 192 to 194T) in the Income Tax Act, 1961 are now consolidated under two sections, section 392 and section 393 of the income Tax Act, 2025.
The rates of TDS/TCS as well as thresholds are largely the same as in new Act with that of old Act.
What is the new Section?
The Section 393(1) Sl. No. 1(ii) of the Income Tax Act, 2025 governs the Tax Deduction at Source (TDS) on payment made as commission or brokerage at a rate of 2%. TDS under this section is to be deducted only if such payment for commission or brokerage exceeds Rs 20,000 in the financial year.
Who is liable to deduct?
Any specified person as defined in Section 402(37) of the Income-tax Act, 2025 is liable to deduct TDS on commission.
The provision says:
“Specified person” means—
(a) any person, not being an individual or Hindu undivided family; or
(b) an individual or Hindu undivided family whose total sales, gross receipts or turnover from business or profession exceed:
- Rs. 1 crore in case of business, or
- Rs. 50 lakh in case of profession, during the immediately preceding tax year
When TDS is to be deducted?
The time of deduction is-
- at the time of credit of such income or sum to the account of the payee;
- or at the time of its payment in cash or by way of a cheque or a draft or by any other mode, whichever is earlier.
Rate of TDS
- The rate of TDS is 2%.
- No surcharge or education cess shall be added to the above rates.
- The rate of TDS will be 20% in all cases if the deductee does not quote PAN
Meaning of Commission and Brokerage
It draws the same meaning as that of the old repealed Act of 1961. Commission or brokerage includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person –
- for services rendered (not being professional services); or
- for any services in the course of buying or selling of goods; or
- in relation to any transaction relating to any asset, valuable article or thing, not being securities
Judicial principles continue to distinguish between:
- Commission relationship (agent/principal), and
- Trade discount relationship (principal-to-principal)
If goods are bought and sold independently without agency, the margin may not be commission.
When TDS on Commission is not to be deducted Section 393(1) Sl. No. 1(ii)?
- When the payment made during the tax year is less than or equal to Rs.20,000.
- Any payment of commission or brokerage payable by BSNL or MTNL to their public call office franchisees.
- When an employer is paying a commission to the employee.
- Brokerage or commission related to transactions in securities, professional services & on insurance income and loan underwriting.
- In case such person (the proposed deductee) makes an application to the assessing officer for deduction of tax at NIL rate or at a lower rate.
The provision discussed above has been briefly summarized diagrammatically below:
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