TDS on Commission and Brokerage: Section 393 Rates, Threshold and Exceptions

TDS on Commission and Brokerage: Section 393#

Any payment described as commission or brokerage — for services rendered in buying or selling goods, or for a transaction relating to an asset, valuable article, or thing other than securities — attracts tax deduction at source under Section 393 of the Income Tax Act, 2025. Section 393 consolidated over 40 separate TDS provisions from the erstwhile Income Tax Act, 1961 (commission and brokerage TDS being one of them) into a single section, so the rates and thresholds below now sit within that unified framework rather than as a standalone section.

What Counts as "Commission or Brokerage"?#

The scope is broader than the everyday meaning of the word. It covers any payment (by whatever name called) received or receivable, directly or indirectly, by a person acting on behalf of another for:

• Services rendered in the course of buying or selling goods, or
• Any transaction relating to an asset, valuable article, or thing (other than securities)

This includes commission paid to sales agents, referral fees, distributor incentives structured as commission, del credere commission, and brokerage paid to intermediaries facilitating a deal. It does not cover professional fees (which fall under the separate professional-fees TDS provision) or salary paid to an employee, even if that employee's pay is commission-linked — payments to employees are covered under the salary-TDS provisions instead.

TDS Rate and Threshold#

• Rate: 2% of the commission or brokerage amount (5% if the payee doesn't provide a valid PAN)
• Threshold: No deduction is required if the total commission or brokerage paid or credited to a single payee doesn't exceed ₹15,000 in the financial year
• Once the aggregate crosses ₹15,000 for that payee in the year, TDS applies on the full amount, not just the excess over ₹15,000

Who Must Deduct#

Any person responsible for paying commission or brokerage — companies, firms, and individuals/HUFs whose turnover exceeded the tax-audit threshold in the preceding financial year — must deduct TDS before crediting or paying the amount, whichever is earlier. Individuals and HUFs below the tax-audit threshold are generally not required to deduct under this provision, though it's worth confirming your specific turnover position each year since the audit threshold itself is reviewed periodically.

Key Exceptions#

A few categories are specifically carved out, and missing these is one of the more common compliance errors:

• Insurance commission — commission paid to insurance agents is covered under a separate, dedicated TDS provision with its own rate and threshold, not this one. Don't apply this provision's rate to insurance agent payouts.
• Commission paid by BSNL/MTNL to franchisees for the sale of SIM cards or recharge coupons is specifically excluded.
• Underwriting commission on the issue of securities is not covered here — it falls outside this provision's scope.
• Payments to employees — as above, any commission-linked payment made to someone who is your employee is a salary payment, not a commission payment for TDS purposes, and is taxed under the salary-TDS rules instead.

Worked Example#

A business pays a sales agent ₹8,000 in commission in Q1, then a further ₹9,000 in Q2 — a cumulative ₹17,000 for the year, which crosses the ₹15,000 threshold.

Note that the deduction is triggered retroactively on the full cumulative amount once the threshold is breached during the year — businesses that only start deducting from the payment that crosses ₹15,000 onward, and skip TDS on the earlier payments in the year, under-deduct and remain liable for the shortfall plus interest.

Depositing and Reporting#

TDS deducted under this provision follows the standard TDS compliance cycle:

• Deposit: By the 7th of the following month (30th April for March deductions)
• Quarterly return: Reported in Form 27Q if the payee is a non-resident, or the standard quarterly TDS return for resident payees
• Certificate to payee: Form 131 (the ITA 2025 successor to Form 16A), issued quarterly, within 15 days of the due date for filing that quarter's TDS return — see our Form 130 vs Form 131 guide for how to issue and verify these

Common Mistakes#

• Applying the wrong rate to insurance commission — a genuinely different provision applies there; check which category the payment actually falls into before deducting.
• Missing the retroactive threshold trigger — once cumulative payments to one payee cross ₹15,000 in the year, TDS is due on the full amount, including earlier payments already made.
• Treating referral or incentive payments to employees as commission TDS — these should go through payroll/salary TDS instead.
• Not obtaining PAN before the first payment — this determines whether 2% or 5% applies, and chasing PAN details after a payment has already gone out complicates the deduction and correction process.

Frequently Asked Questions#

Is TDS on commission applicable to individuals? Only if the individual's turnover in the preceding financial year exceeded the tax-audit threshold. Individuals below that threshold generally don't need to deduct TDS on commission they pay.

Does the ₹15,000 threshold apply per payment or per year? Per financial year, aggregated across all payments to that specific payee. It isn't reset each time a fresh payment is made.

What if the commission recipient is a non-resident? A different withholding-tax provision applies to payments to non-residents, generally at a different rate and subject to any applicable tax treaty — this provision's 2%/5% rate structure is specific to payments to residents.

Can the payee claim a refund if TDS was deducted but their income is below the taxable threshold? Yes — TDS deducted is a credit against final tax liability, and if the payee's total taxable income doesn't attract tax (or attracts less tax than what was deducted), they can claim a refund by filing their income tax return and reflecting the TDS credit shown in their Form 26AS/AIS.

Key Takeaways#

• 2% TDS on commission/brokerage (5% without PAN), with a ₹15,000-per-payee annual threshold.
• Once the threshold is crossed, TDS applies to the entire cumulative amount, not just the excess.
• Insurance commission, BSNL/MTNL SIM-card franchisee commission, and underwriting commission are specifically excluded — check which provision actually applies before deducting.
• Employee-linked commission payments go through salary TDS, not this provision.