Why This Provision Exists — A Brief History

TDS on commission and brokerage was introduced to close a straightforward revenue gap. Before Section 194H existed, commission income earned by agents, brokers, and intermediaries was reported — if at all — only at the time the recipient filed their own return, often long after the transaction that generated it. For an economy with millions of small agents, sub-agents, and referral-based intermediaries, that created a substantial compliance and collection gap.

Section 194H addressed this by shifting the collection point upstream: the person paying the commission became responsible for withholding tax at the time of payment or credit, creating a real-time audit trail that flows into the recipient’s Form 26AS automatically. The 2% rate under Code 1006 continues that same real-time collection logic — only the section number and reporting code have moved.

What Changed and What Didn’t: Code 1006 vs Old Section 194H

Old Section 194H of the Income-tax Act, 1961 governed TDS on commission or brokerage payments other than insurance commission. From 1 April 2026, this provision is consolidated under Section 393(1), Table Sl. No. 1(ii) of the Income Tax Act, 2025, and carries the payment code 1006 for reporting in your quarterly TDS return.

That structural move is real. But two other changes that frequently get bundled into “what’s new for 2026” actually happened earlier, under the old Act, and simply carry forward unchanged into the Code 1006 framework.

The Rate Cut You May Have Missed (2024, Not 2026)

The TDS rate on commission and brokerage dropped from 5% to 2% under the Finance Act 2024, effective 1 October 2024 — nearly a year and a half before the Income Tax Act 2025 came into force. If your accounts team is still applying 5%, that error predates the new code system entirely and needs correcting regardless of which Act governs the transaction.

The Threshold Increase (April 2025, Not 2026)

Similarly, the annual threshold rose from ₹15,000 to ₹20,000 under Budget 2025, effective 1 April 2025 — again, a full year before Code 1006 existed. From Tax Year 2026-27 onward, Code 1006 simply continues this already-current ₹20,000 threshold; it is not a fresh relief introduced by the new Act.

Who Must Deduct TDS Under Code 1006

The obligation to deduct TDS under Code 1006 falls on:

• Any person, other than an individual or Hindu Undivided Family, paying commission or brokerage to a resident.
• An individual or HUF, if their business turnover exceeded ₹1 crore, or professional gross receipts exceeded ₹50 lakh, in the immediately preceding financial year (i.e., they were liable for tax audit under Section 44AB equivalent provisions).

Small individuals and HUFs below these thresholds are not required to deduct TDS under Code 1006, even if the commission they pay exceeds ₹20,000 — the same exemption that applied under old Section 194H.

This exemption is assessed annually, based on the preceding financial year’s turnover or receipts — not the current year’s. A sole proprietor whose turnover crossed ₹1 crore for the first time in FY 2025-26 becomes liable to deduct TDS under Code 1006 for Tax Year 2026-27, even if their current-year turnover is projected to be lower. Track this threshold annually rather than assuming last year’s exemption status still applies.

Pre-Filing Checklist for Code 1006

Run through this before your next Form 140 filing:

• Confirm every vendor previously tagged “194H” in your ERP or Tally has been remapped to Code 1006 — not left blank or defaulted incorrectly.
• Separate insurance-commission vendors into Code 1005; do not let them sit under the same category as general commission agents.
• Verify the 2% rate is applied consistently — check for any lingering 5% configurations left over from before October 2024.
• Confirm the ₹20,000 threshold is tracked cumulatively per payee across the full financial year, not reset each quarter.
• Check that TDS is calculated on the GST-exclusive commission value where GST is separately shown.
• Verify PAN status for every commission payee through TRACES bulk verification before applying the 2% rate — an invalid or unlinked PAN triggers the 20% rate automatically.
• For Q4 FY 2025-26 payments credited before 31 March 2026, confirm your return still cites old Section 194H, not Code 1006.

Code 1006 vs Code 1005: Commission vs Insurance Commission

One of the most frequent misclassifications is treating all commission payments as Code 1006. Insurance commission is explicitly excluded and falls under a separate code entirely — Code 1005, the successor to old Section 194D — which applies “rates in force” rather than a flat 2%, and follows its own threshold and payee-category rules.

If your business pays commission to insurance agents as part of a bundled financial-products distribution model, split that payment stream from general sales or referral commission at the vendor-master level. Coding an insurance agent’s commission under 1006 instead of 1005 is a classification error even if the deducted amount happens to look similar.

What Counts as Commission or Brokerage — And What Doesn’t

Code 1006 covers payments received or receivable, directly or indirectly, by a person acting on behalf of another — for services rendered, for facilitating the purchase or sale of goods, or in relation to a transaction involving an asset or valuable article. In practice, this includes real estate brokerage, sales agency commission, referral fees, and distributor incentive payments structured as commission.

Several categories are specifically carved out and must not be coded under 1006:

• Insurance commission — Code 1005 instead.
• Professional services commission — falls under Code 1027 (old Section 194J) if the payment is genuinely for professional expertise rather than agency-style commission.
• Employer-employee commission — taxed as salary under Section 392, not as commission.
• Brokerage on listed securities transactions — excluded from this provision entirely.
• Underwriting commission on public issue of securities — separately excluded.
• Payments by BSNL or MTNL to public call office franchisees — a narrow statutory carve-out that continues unchanged.

Genuine trade discounts and cash discounts — the ordinary practice of a manufacturer offering a lower price to a distributor rather than paying a separate commission — also fall outside Code 1006, since no agency relationship or service fee is involved. This distinction has been litigated before; courts have generally held that a principal-to-principal discount is not commission, while a structured incentive paid to an agent for closing sales is.

Commission TDS and GST: Deduct on the Net, Not the Gross

If the commission or brokerage falls under GST, TDS under Code 1006 is deducted on the base commission value, excluding the GST component — provided the GST amount is separately indicated on the invoice. Deducting TDS on the GST-inclusive figure is a common accounts-payable error that over-deducts and creates an unnecessary reconciliation headache for the payee at return-filing time.

Industry Patterns: Where Code 1006 Comes Up Most

Certain sectors generate a disproportionate share of commission TDS questions. Here’s how the classification typically resolves in practice.

Real Estate and Property Broking

Brokerage paid to a real estate agent for facilitating a sale, purchase, or lease is squarely Code 1006. Where the same transaction also involves TDS on the property purchase itself under Section 393(1) Sl. 3(iii) (old Section 194-IA), remember these are two entirely separate deductions on two separate payees — the seller and the broker — and must not be netted against each other.

E-commerce and Marketplace Commission

Commission paid by a manufacturer or brand to an independent sales agent or channel partner is Code 1006. This is distinct from commission an e-commerce operator deducts from a seller’s payout for facilitating an online sale, which falls under the separate e-commerce operator TDS provision (old Section 194O), not under Code 1006 at all — a distinction that trips up D2C brands running both a direct sales-agent network and a marketplace presence simultaneously.

Travel, Ticketing and Tour Operators

Commission paid to travel agents for booking tickets, tours, or hotel packages on a business’s behalf is Code 1006. Airlines issuing tickets to travel agents at a genuine concessional price — a principal-to-principal discount rather than a fee for agency services — generally falls outside this provision, following the same trade-discount logic discussed above.

BFSI Distribution (Non-Insurance)

Commission paid to distributors of mutual funds, fixed deposits, or loan products is Code 1006, provided it isn’t insurance commission (Code 1005) or a professional advisory fee (Code 1027). Financial products distribution businesses running multi-product agent networks should maintain separate vendor-master categories for each product line to avoid cross-coding.

Manufacturing and Dealer Networks

Manufacturers running multi-tier dealer networks often blend genuine pricing discounts with structured incentive schemes in the same commercial relationship — a dealer might buy at a standard wholesale price (a discount, outside Code 1006) while separately earning a quarterly volume bonus paid as a distinct credit note or bank transfer (commission, inside Code 1006). Treat these as two separate accounting line items from the outset rather than netting them into a single “dealer margin” figure, since only the second component carries a TDS obligation.

Construction and Real Estate Sales Agencies

Builders and developers who engage external sales agencies to sell under-construction units typically pay a percentage-based commission on each unit sold. This is unambiguously Code 1006, and given the high transaction values typical in real estate, the ₹20,000 threshold is crossed almost immediately — meaning TDS should generally be built into the very first commission payment on any sales mandate rather than tracked toward a threshold.

Step-by-Step: Calculating TDS Under Code 1006

Step 1. Confirm the payment is genuinely commission or brokerage as defined above, and not insurance commission, professional fees, or salary.

Step 2. Aggregate all commission payments to that payee during the financial year. TDS applies once the cumulative total crosses ₹20,000 — and once it does, TDS applies to the full amount, not just the excess over ₹20,000.

Step 3. Confirm PAN has been furnished. If not, deduct at 20% instead of 2%, regardless of the threshold analysis, once TDS is otherwise due.

Step 4. Deduct 2% at the time of credit or payment, whichever is earlier — including credits made to a suspense account or under any other head.

Real Client Scenarios

Code 1006 in Context: Neighbouring Codes You Shouldn’t Confuse It With

Section 393(1)’s Table Sl. No. 1 groups several income-type payments together, and Code 1006 sits alongside a few codes that are easy to mix up if you’re moving quickly through a vendor master cleanup.

When in doubt about which of these applies, work backwards from the underlying relationship rather than the invoice title: is the payee acting as your agent facilitating a transaction (1006), a licensed insurance intermediary (1005), an independent professional exercising judgement (1027), or a digital platform deducting its own fee from a seller’s proceeds (a different provision entirely, not 1006)?

If You’re the Payee, Not the Deductor

If you earn commission income, reconcile your Form 131 certificates against your own invoice records each quarter rather than waiting for year-end. Confirm the code shown is 1006 (or 1005 if the payment is genuinely insurance-related) and that TDS was calculated on the correct base amount, excluding GST. A code mismatch or an over-deduction on the GST-inclusive amount is easiest to fix with the payer before their next quarterly filing — correcting it afterward requires them to file a correction statement, which delays your credit showing up correctly in Form 26AS.

Common Filing Mistakes With Code 1006

Judicial Guidance: Commission vs Discount vs Fee

Because “commission” is defined broadly and several adjacent categories look similar on an invoice, courts have had to draw boundaries around the term more than once. Three recurring fact patterns are worth knowing.

Concessional pricing between principals is not commission. Where an airline sells tickets to a travel agent at a lower price than the public fare, and the agent’s margin comes from that price difference rather than a separately invoiced fee, the relationship has been treated as a principal-to-principal sale rather than an agency arrangement — meaning no TDS obligation arises under this provision. The same logic extends to any wholesaler-to-retailer pricing structure where the “discount” is genuinely a lower purchase price, not a disguised service fee.

Structured trade incentives to dealers can still be commission. Where a manufacturer pays dealers a volume-linked incentive on top of the standard purchase price — rather than simply invoicing at a lower rate — tribunals have treated this as commission subject to TDS, even when both parties label it a “discount” or “incentive” internally. The determining factor is substance over form: does the dealer earn a margin purely from independent resale, or is a portion of that margin actually a fee paid for achieving a target?

The safest practical rule is to examine how the payment is structured, not what it’s called. If the amount is baked into the transaction price with no separate payment or credit note, it is very likely a discount. If it is calculated and paid or credited as a distinct line item — even described as an “incentive” or “rebate” — treat it as commission under Code 1006 until you have specific advice suggesting otherwise, since the cost of over-deducting is far lower than the cost of a disallowance for non-deduction.

Applying for Lower or Nil TDS Deduction Under Section 197

A commission agent whose actual tax liability is lower than the flat 2% deduction — for instance, an agent operating at thin margins or carrying forward losses — can apply to the Assessing Officer for a certificate authorising deduction at a lower rate, or nil deduction, under the provision succeeding old Section 197. This is a genuine relief mechanism, but it requires proactive filing; TDS deductors cannot apply a reduced rate on their own judgement, no matter how confident they are about the payee’s tax position.

Once issued, the certificate specifies a validity period and a maximum payment amount it covers. Deductors should collect the certificate directly from the payee, verify it against the TRACES portal, and apply the specified rate only within the certificate’s validity window and amount ceiling — deducting at the certificate rate beyond either limit is itself a compliance lapse.

Free Quick Commission TDS Calculator

Enter a commission amount below to check the applicable TDS instantly. For a complete calculation across every TDS category, use the full free TDS Calculator on our Tools page.

Bookmark this page — updated whenever CBDT issues fresh clarifications on Section 393 commission provisions.

Quick Reference Table

Filing: Form 140, Challan 281, Form 131

1. Deposit the TDS via Challan ITNS 281 by the 7th of the following month, or 30 April for March deductions.

2. Report Code 1006 in Form 140 for your quarterly non-salary TDS return. Quoting “194H” instead of the numeric code makes the return defective.

3. Issue Form 131 to the payee once the return is processed, reflecting Code 1006 and the 2% rate applied.

Key Takeaways

• Code 1006 replaces old Section 194H for commission and brokerage TDS from 1 April 2026 — the code changed, not the substance.
• The 2% rate has applied since 1 October 2024, and the ₹20,000 threshold since 1 April 2025 — neither is a “2026 change.”
• Insurance commission is Code 1005, not 1006 — don’t conflate the two.
• Trade discounts to distributors are not commission unless a genuine agency relationship exists.
• File under Form 140, deposit via Challan 281, issue Form 131.

Frequently Asked Questions

Conclusion

TDS Code 1006 is, in substance, the same 2% commission TDS you’ve been deducting since October 2024, now filed under a new code and section reference from Tax Year 2026-27. The real compliance work isn’t recalculating rates — it’s making sure every vendor tagged “194H” in your accounting software has been correctly remapped, that insurance commission stays separated under Code 1005, and that your Q1 return cites the new code rather than the retired section number. For every other payment code your business needs, see our complete TDS Rate Chart for Tax Year 2026-27 or the broader TDS Guide. Unsure how a specific commission arrangement should be classified? Reach out to us — we’re happy to point you to the right resources.

As with every provision under the Income Tax Act 2025’s transition, treat your Code 1006 setup as a living configuration rather than a one-time fix. Vendor relationships evolve — a distributor paid on a discount basis today may shift to a formal incentive structure next quarter — and each change is an opportunity to misclassify a payment stream that used to be straightforward. Building the habit of re-checking classification whenever a contract terms sheet changes will save far more time than any single correction statement ever costs.

For related reading, see our guides on TDS Code 1026 or 1027: Classifying Professional vs Technical Fees and TDS Mismatch in Form 26AS: Causes and Fixes. For the official position, see the Income Tax Department’s guidance on the Section 393 transition and the official TDS rates reference.