TDS on commission and brokerage paid by a company: when to deduct and what it costs to miss

Your company pays a sales agent or a broker ₹35,000 as commission. Do you cut TDS? For a company, usually yes. This article walks through the rule for payments from 1 April 2026 (tax year 2026-27), the clock, and the cost of missing it.

Which law applies to your payment

The Income-tax Act, 2025 came into force on 1 April 2026 (s.1(3), Income-tax Act 2025). So a commission or brokerage that you credit or pay on or after that date, in tax year 2026-27 or later, falls under the Income-tax Act 2025. The TDS rule is in section 393.

Payments before that date belong to the earlier Income-tax Act, 1961, whose provision was section 194H. The official mapping of the two Acts links section 194H of the 1961 Act ("Commission or brokerage") to section 393 and section 402 of the Income-tax Act 2025. This article covers only the Income-tax Act 2025; for an older payment, have a CA check the rules that applied then.

What section 393 says about commission and brokerage

Section 393(1), Income-tax Act 2025 sets out a Table of payments to residents. Serial number 1 is "Commission or brokerage". It has two parts.

Part (i): insurance commission. This is any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business, including business relating to the continuance, renewal or revival of insurance policies. The payer is "any person". The rate is "rates in force". The threshold is ₹20,000 (s.393(1), Table, Sl. No. 1(i), Income-tax Act 2025).

Part (ii): every other commission and brokerage. This is any income by way of commission (other than the insurance commission above) or brokerage. The payer is a "specified person". The rate is 2%. The threshold is ₹20,000 (s.393(1), Table, Sl. No. 1(ii), Income-tax Act 2025).

For a sales agent or a property broker, part (ii) applies. For an insurance agent, part (i) applies and the rate is "rates in force"; look up the current rate, as the table gives no figure.

Is your company a "specified person"?

Part (ii) applies only when the payer is a "specified person". The Act defines the term in section 402(37), Income-tax Act 2025. It means:

any person who is not an individual or a Hindu undivided family; or
an individual or Hindu undivided family whose total sales, gross receipts or turnover from business exceed ₹1 crore (or ₹50 lakh from a profession) in the tax year immediately before the year in which the sum is credited or paid.

A company is neither, so every company, however small, is a specified person.

What counts as "commission or brokerage"

Many payments are called a fee, a retainer, an incentive or a referral. The name does not decide the question. Section 402(7), Income-tax Act 2025 says "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.

The Act's interpretation provisions point back to this same meaning (s.2, Income-tax Act 2025, citing s.402(7)). In plain words, the test is this: is the payee acting for you, or on your behalf, in getting something done or sold or bought? If yes, it is likely commission or brokerage.

Two limits in the definition. The words "not being professional services" take out fees to a lawyer, CA or doctor. Those are covered by a different line of the table and are not part of this article. And "not being securities" takes out the sale of shares and similar securities from the third limb.

The one carve-out for no deduction

Section 393(4), Income-tax Act 2025 lists cases where tax is not deducted. For commission or brokerage under Sl. No. 1(ii), the condition is narrow: commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees (s.393(4), Table, Sl. No. 1, Income-tax Act 2025).

That does not help an ordinary company.

The threshold: how ₹20,000 works

The threshold is not a free allowance. Section 393(1)(a), Income-tax Act 2025 says the company deducts tax "on the entire amount of such income or sum, where the amount or aggregate of amounts exceeds the threshold limit".

Two things follow.

It is the aggregate that counts. If you pay one broker ₹12,000 in June and ₹10,000 in October in the same tax year, the total is ₹22,000. The threshold is crossed.
Once it is crossed, tax applies on the whole amount, not only the part above ₹20,000.

Keep a running total for each payee, for each tax year.

The clock: when to deduct

Section 393(1)(c), Income-tax Act 2025 fixes the moment. Deduct at the time of credit of the sum to the payee's account, or at the time of payment in cash, cheque, draft or any other mode, "whichever is earlier".

So you do not wait for the cheque. If you book the commission in your accounts as payable to the agent at 31 March, you have "credited" it. The duty to deduct has started on that date, even if you pay in May.

After you deduct, you must pay the tax to the Central Government "in such time as may be prescribed" (s.397(3)(a), Income-tax Act 2025). You then deliver a statement of deductions in the prescribed form and time (s.397(3)(b), Income-tax Act 2025). The exact due dates come from the rules made under the Act. Check the current due dates on the income-tax e-filing portal before you pay or file.

Step by step

Get the payee's PAN. Every person entitled to receive an amount on which tax is deductible must give a valid PAN to the payer (s.397(2)(a), Income-tax Act 2025).
Check the head. Is this commission or brokerage, or something else? Use the three limbs in section 402(7).
Check the payer. For a company, part (ii) of Sl. No. 1 applies. Insurance commission is part (i).
Check the total. Add up all payments to this payee in the tax year. Is the total above ₹20,000?
Deduct at the earlier of credit or payment. Take 2% for part (ii) on the whole amount once the threshold is crossed (s.393(1), Table, Sl. No. 1(ii)).
Have a TAN. Every person deducting tax must apply for a tax deduction and collection account number, unless the exceptions in section 397(1)(c) apply (s.397(1)(a), Income-tax Act 2025). Quote it in challans and statements (s.397(1)(b)).
Pay the tax and file the statement within the prescribed time (s.397(3)). Then issue the TDS certificate to the payee in the form and time the rules prescribe; check the current rules.

If the payee has no PAN, the rule is harsher. Tax is deducted at the higher of the rate in the provision, the rate in force, or 20% in any other case (s.397(2)(b)(i), Income-tax Act 2025). A missing PAN can make your TDS much higher than 2%.

Lower or nil deduction certificate

A payee can ask for a lower rate or no deduction. Section 395, Income-tax Act 2025 deals with certificates for lower or nil deduction. As amended by the Finance Act 2026, the application can also be filed before the prescribed income-tax authority, which may issue a certificate after electronic verification of the application (s.395(6), Income-tax Act 2025, as inserted by s.86, Finance Act 2026). If the payee gives you such a certificate, you deduct at the rate in it, or deduct nothing, until the certificate's validity ends (s.395(1)(c)).

Do not accept a plain letter that says "please do not deduct". Insist on the certificate.

What happens if you miss it

Four consequences matter for a company.

1. You are an "assessee in default". If you do not deduct, do not pay, or deduct and fail to pay, you are deemed an assessee in default for that tax (s.398(1), Income-tax Act 2025). This is in addition to other consequences under the Act.

2. Interest. You owe simple interest at 1% per month or part of a month from the date the tax was deductible to the date it is deducted. If you deduct but do not pay, the rate is 1.5% per month or part of a month from the date of deduction to the date of payment (s.398(3)(a), Income-tax Act 2025). The interest must be paid before you file the statement (s.398(3)(b)).

3. 30% of the expense is disallowed. In computing your business profit, 30% of the sum payable to a resident is not allowed as a deduction if tax was not deducted, or was deducted but not paid by the due date in section 263(1), Income-tax Act 2025 (s.35(b)(i), Income-tax Act 2025). If you deduct and pay the tax in a later year, the 30% is allowed in that later year (s.35(b)(i)(A)). Your tax bill goes up for the year of default, even when the agent has done nothing wrong.

4. A charge on your assets. Where tax was deducted but not paid, tax and interest are a charge upon all your assets (s.398(4), Income-tax Act 2025).

There is also a relief. If the payee has filed the return, included the commission in income and paid the tax, and you furnish an accountant's certificate in the prescribed form, you are not treated as an assessee in default for that tax (s.398(2), Income-tax Act 2025). Interest then runs only up to the date the payee filed the return (s.398(3)(c)).

The time limit to be declared in default is six years from the end of the tax year in which tax was deductible, or two years from the end of the year in which a correction statement was delivered, whichever is later (s.398(5), Income-tax Act 2025). No penalty under section 412 applies unless the Assessing Officer is satisfied that you failed "without good and sufficient reasons" (s.398(7)).

What not to do

Do not wait for payment. Deduction is due at credit or payment, whichever is earlier (s.393(1)(c)).
Do not use the old section number for new payments. Payments from 1 April 2026 go under section 393, Income-tax Act 2025.

What to do now

Next step: List every commission and brokerage payee for this tax year. For each, check the PAN, the running total against ₹20,000, and whether tax was deducted at the earlier of credit or payment (s.393(1)(a) and (c), Income-tax Act 2025).
Deadline: Deducted tax must be paid, and the statement filed, within the time prescribed under section 397(3), Income-tax Act 2025. Check the current dates on the income-tax e-filing portal.
Consequence of missing: simple interest at 1% a month (not deducted) or 1.5% a month (deducted, not paid), and a 30% disallowance of the expense (s.398(3)(a) and s.35(b)(i), Income-tax Act 2025).

Have a CA review your facts before you act or file.

FAQs

Does a company deduct TDS on commission paid to an individual agent?
Yes. The payee's status does not matter. The payer is a "specified person" and the total exceeds ₹20,000 in the tax year (s.393(1), Table, Sl. No. 1(ii), and s.402(37), Income-tax Act 2025).

What is the rate on commission and brokerage?
For commission and brokerage other than insurance commission, 2% (s.393(1), Table, Sl. No. 1(ii), Income-tax Act 2025). For insurance commission the table says "rates in force", so look up the current rate.

Is the ₹20,000 limit per payment or per year?
Per tax year, on the aggregate paid or credited to the same payee. Once the total exceeds ₹20,000, tax applies on the entire amount (s.393(1)(a), Income-tax Act 2025).

We missed TDS on commission in a tax year under the 2025 Act. Can we fix it?
You can still deduct and pay, and pay the interest under section 398(3). If the agent has filed the return and paid the tax on that income, a CA can give you the certificate that protects you from being treated as in default (s.398(2), Income-tax Act 2025). Without it, 30% of the expense stays disallowed until the tax is paid (s.35(b)(i), Income-tax Act 2025).

Which Act applies to a commission credited in May 2026?
The Income-tax Act 2025, because it came into force on 1 April 2026 (s.1(3), Income-tax Act 2025). The rule is section 393. A payment before 1 April 2026 belongs to the earlier Act, which this article does not cover.

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