India’s new Income Tax Act 2025 streamlines tax deduction at source on commissions, applying a 2% TDS threshold of ₹20,000 from April 2026, aiming to ease compliance for businesses and shift towards a consolidated framework.
India’s overhaul of its tax deduction rules for commission payments will take effect from April 1, 2026, as the new Income Tax Act, 2025, replaces a patchwork of older provisions with a more consolidated system. Under the updated framework, commission and brokerage payments are broadly brought together under Section 393(1), with a 2% tax deduction at source applying once annual payments to a single recipient cross ₹20,000, according to the material published on CAclubindia and corroborated by other tax reference guides.
The new rules aim to simplify compliance for businesses that pay commissions in the course of trade. For general commission and brokerage to resident individuals or entities, the threshold is ₹20,000 a financial year, while insurance commission and lottery ticket sale commission are also covered under separate entries within Section 393. Tax reference materials on the new Act say the same section now acts as the central TDS provision for several payment categories that were previously spread across multiple clauses in the older law.
Who must deduct the tax depends on the nature of the payer. Companies, firms, limited liability partnerships and associations of persons must deduct TDS once the threshold is exceeded. Individuals and Hindu undivided families are generally covered only if their turnover or gross receipts in the previous year were above the tax audit limits, namely ₹1 crore for business or ₹50 lakh for profession. Where those thresholds are not met, but commission payments are still substantial, the obligation may instead fall under Section 194M, according to the CAclubindia summary.
The deduction timing remains familiar: tax is triggered at the earlier of credit to the payee’s account, including a suspense account, or actual payment. The guidance also makes clear that the term commission covers remuneration for facilitating or arranging transactions involving goods, property, assets or services. By contrast, direct bank charges, underwriting commission on public issues, insurance commission, lottery commission and professional fees fall under other provisions or are separately excluded.
The article also flags a few practical points that are likely to matter in day-to-day accounting. GST is not part of the TDS base if it is shown separately on the invoice. Where an agent retains commission from collections rather than receiving a separate payment, the gross amount still attracts TDS. And once cumulative commission passes the threshold, tax applies to the full amount, not just the excess. For deposits, the due date is generally the 7th of the following month, except for March deductions, which are due by April 30, while quarterly Form 26Q filings follow the usual July, October, January and May deadlines.
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