Tax on Commission and Brokerage Income in India: 194D, 194H, Why Section 44AD Is Barred and Which ITR to File (AY 2026-27)

Commission income is one of the most commonly mis-filed categories in Indian income tax. An LIC agent earning ₹4 lakh a year, a mutual fund distributor with trail commission, a property broker, or a salaried employee who received ₹30,000 as a referral payout all sit in the same tax bucket. And that bucket is not "other income" on a simple ITR-1.

This guide covers how commission and brokerage income is taxed for FY 2025-26 (AY 2026-27), the TDS rates and thresholds that changed on 1 April 2025, and the one presumptive scheme almost every agent wrongly assumes they can use.

Commission Income Is Business Income, Not Other Income

Under the Income Tax Act, commission or brokerage earned for arranging a transaction between two parties is income from business or profession under Section 28. It is not salary, even if you work exclusively for one insurer. It is not income from other sources, even if it arrived as a single annual payment.

This single classification drives everything else:

• You cannot file ITR-1 or ITR-2 if commission is your own business receipt.
• You must file ITR-3, or ITR-4 if a presumptive scheme genuinely applies to you.
• You can deduct the actual expenses you incurred to earn that commission.
• You may need to maintain books of account and, above a turnover threshold, get a tax audit.

The exception is narrow. If you are a salaried employee and your employer pays you a commission as part of your employment contract, such as a sales incentive shown in Form 16, that is salary under Section 17, not business income. The test is the relationship: an employee earns salary, an independent agent earns business income.

If you are unsure which form applies once you add commission to your salary or capital gains, our guide to choosing between ITR-1, ITR-2, ITR-3 and ITR-4 walks through the decision tree.

TDS on Commission: Rates and Thresholds for FY 2025-26

The Finance Act 2025 raised most TDS thresholds from 1 April 2025, and the rate on commission was cut from 5% to 2% earlier. Here is what applies to payments made during FY 2025-26.

Two practical points.

First, the threshold is cumulative for the year, not per payment. An insurer paying you ₹5,000 every quarter crosses ₹20,000 in the fourth quarter and must deduct on the full amount, not just the excess.

Second, TDS at 2% is almost always less than your final tax if you are in the 20% or 30% bracket. Agents who assume "TDS is deducted, so my tax is done" end up with an interest demand under Sections 234B and 234C. Our guide to interest under 234A, 234B and 234C shows how quickly that adds up.

If your total income for the year will be below the taxable limit, you cannot use Form 15G to stop TDS on commission. Form 15G covers interest, dividend and a few specified payments, not Section 194H or 194D commission. Your only route is a lower or nil deduction certificate under Section 197 from the Assessing Officer, or simply claiming the refund when you file.

Why You Cannot Use the 44AD Presumptive Scheme

This is the most expensive misconception in this category.

Section 44AD lets a small business declare 8% of turnover as income (6% for digital receipts) and skip books of account. Section 44AD(6) explicitly excludes two things: a person carrying on an agency business, and a person earning income in the nature of commission or brokerage.

So an insurance agent, a mutual fund distributor, a DSA for a bank, a travel agent earning commission, and a property broker are all outside 44AD.

Section 44ADA, the 50% presumptive scheme, is also unavailable. It applies only to the professions notified under Section 44AA(1): legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, authorised representative, film artist, company secretary and information technology. Selling insurance or distributing mutual funds is not on that list.

The practical consequence is that you must compute real profit: gross commission minus actual, substantiated expenses. For a detailed look at who the presumptive schemes do cover, see our Section 44AD and 44ADA guide.

One caveat worth knowing: if you run a separate eligible business alongside your agency work, for example a retail shop, that business can still use 44AD on its own turnover. The bar applies to the commission stream, not to you as a person.

What You Can Deduct Against Commission Income

Because you are computing actual profit, every genuine expense incurred wholly for earning the commission is deductible under Section 37(1). Typical claims for an agent or broker:

• Travel and vehicle running costs, including fuel and maintenance for client visits
• Mobile and internet bills, apportioned for business use
• Office rent, electricity and maintenance if you keep a separate workspace
• Salary or commission paid to sub-agents and assistants
• Marketing costs: printing, hoardings, digital ads, client gifting within reason
• Professional subscriptions, licence renewal fees, training and certification costs
• Depreciation on your car, laptop, phone and office furniture under Section 32
• Bank charges and interest on a loan taken for business purposes

A Worked Example

Meera is an insurance agent in Pune. For FY 2025-26 she earned ₹9,20,000 in gross commission. The insurer deducted 2% TDS, or ₹18,400, under Section 194D.

Her expenses: ₹1,10,000 on travel and fuel, ₹36,000 on phone and internet, ₹1,44,000 paid to two sub-agents, ₹48,000 on marketing, and ₹62,000 of depreciation on her car and laptop.

Under the new regime for FY 2025-26, tax on ₹5,20,000 is ₹6,000 before rebate, and the Section 87A rebate wipes it out entirely because her total income is well under ₹12 lakh. She gets her full ₹18,400 TDS back as a refund.

Note what happened here. Had she filed on gross commission without claiming expenses, her taxable income would have been ₹9,20,000, with tax of ₹33,280 including cess, and no refund at all. Claiming legitimate expenses is not aggressive planning for a commission earner, it is the only correct way to compute the income.

The old ad-hoc deduction concession for LIC agents, which allowed a flat percentage of first-year and renewal commission where total commission was small, dates from 1991 circulars and is of very limited relevance today. Keep receipts and claim actuals instead.

Books of Account, Audit and Deadlines

Under Section 44AA(2), you must maintain books of account if your business income exceeds ₹2,50,000 or your gross receipts exceed ₹25,00,000 in any of the three immediately preceding years. Most full-time agents cross this. A cash book, ledger, bills for expenses and a fixed asset register are enough; the prescribed Rule 6F list applies to specified professions, not to agency businesses.

Tax audit under Section 44AB applies once gross receipts exceed ₹1 crore, extended to ₹10 crore if both your cash receipts and cash payments are 5% or less of the total. Our Section 44AB tax audit guide covers the mechanics.

Key dates for AY 2026-27:

• Advance tax in four instalments: 15% by 15 June 2025, 45% by 15 September 2025, 75% by 15 December 2025, 100% by 15 March 2026, if your total tax liability after TDS is ₹10,000 or more
• ITR due date without audit: 31 July 2026
• ITR due date with audit: 31 October 2026

The Regime Choice Is Stricter for You

The new regime under Section 115BAC is the default. Because you have business income, opting for the old regime requires filing Form 10-IEA on or before the ITR due date, and the switch is not freely reversible: once you opt out and later return to the new regime, you cannot opt out again. Salaried taxpayers can flip every year; you cannot. Decide deliberately, and see our old versus new regime comparison before filing the form.

Small Referral Commissions on a Salaried Return

A growing problem is the salaried professional who earns ₹15,000 to ₹50,000 a year from a bank referral, a broking affiliate link or a one-off property introduction. The payer files a 194H entry, it appears in your AIS, and it is business income however small.

Strictly, that pushes you to ITR-3 with a small business schedule. Filing ITR-1 with the amount hidden under "other income" is a common cause of a defective return notice under Section 139(9), which our guide to responding to defective return notices explains.

Before you pick a form, check your Annual Information Statement for any 194H or 194D entries you had forgotten. 49Tax's AI reads your AIS and Form 26AS alongside your Form 16 and flags commission entries that change which return you are allowed to file.

One Line on GST

Income tax and GST are separate regimes. Services supplied by an insurance agent to an insurance company fall under reverse charge, so the insurer discharges the GST and the agent does not register on account of that commission. Other commission earners, including most brokers and consultants, must register once aggregate turnover crosses ₹20 lakh for services. Crossing the GST threshold has no effect on your income tax computation.

The Takeaway

If commission or brokerage is your income, do three things before 31 July 2026. Pull your AIS and reconcile every 194D and 194H entry against your own records, because the department's copy is what gets matched. Build an expense schedule with receipts, since presumptive taxation is closed to you and actual expenses are your only deduction. And if you want the old regime, file Form 10-IEA before you file the return, because that door closes on the due date and reopens only once.