TDS on Rent, Professional Fees, Contractors and Commission

For most businesses, four types of payment make up the bulk of the TDS work: rent, fees to professionals, payments to contractors, and commission. Getting the rate, threshold and timing right avoids interest, late fees and, most expensively, the disallowance of the expense itself.

From 1 April 2026 these provisions sit in section 393(1) of the Income-tax Act, 2025, which replaced old sections 194-I, 194J, 194C and 194H. The rates and thresholds have carried over.

Who must deduct?

Companies, firms and LLPs: always.
Individuals and HUFs: only if their business turnover or professional receipts in the previous year crossed the tax audit limits. Others are covered by special provisions for rent (old 194-IB) and large contract or professional payments (old 194M).

Quick reference

Payment	Threshold	Rate
Rent: land, building, furniture	₹50,000 per month or part of a month	10%
Rent: plant, machinery, equipment	₹50,000 per month	2%
Professional fees (CA, lawyer, doctor, architect, consultant)	₹50,000 in the year	10%
Technical services, call centres	₹50,000 in the year	2%
Director’s sitting fees / commission	No threshold	10%
Contractor / sub-contractor (including advertising, transport, catering, labour, manpower supply)	₹30,000 single bill or ₹1,00,000 in the year	1% to individuals/HUFs, 2% to others
Commission / brokerage	₹20,000 in the year	2%
Partner’s salary, interest, commission (paid by the firm)	₹20,000 in the year	10%
No PAN or inoperative PAN	—	20%

Rent: points that trip people up

What counts as rent: any payment for using land, buildings, factory, warehouse, furniture, plant or machinery, including lease rentals, leave and licence fees and warehousing charges.
Monthly test: the threshold is ₹50,000 for a month or part of a month, not ₹6 lakh a year.
Security deposit: a refundable deposit is generally not rent and needs no TDS. A non-refundable or adjustable one may be.
Maintenance charges billed separately by a society are usually not rent. Combined rent-and-maintenance bills from the landlord are treated as rent.
GST: if shown separately in the invoice, TDS is on the amount excluding GST (CBDT Circular 23/2017).

Rent paid by salaried individuals (old 194-IB)

If you are an individual not liable to tax audit and pay rent above ₹50,000 per month, deduct 2%. You do this once a year (or when the tenancy ends), on the last month’s rent, through the challan-cum-statement Form 141 (formerly 26QC), using your PAN, without a TAN. Then issue Form 132 (formerly 16C) to the landlord. If the landlord is an NRI, the higher NRI rates apply instead.

Professional vs technical fees

Professional services (10%): legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising (as a profession), and other notified professions.
Technical services (2%): managerial, technical or consultancy services (as defined), and call centre operations.
When a professional invoice includes reimbursement of expenses, TDS is usually deducted on the whole amount unless the reimbursement is billed separately and backed by actual bills.

Contractor payments

“Work” includes advertising, broadcasting, carriage of goods and passengers, catering, manufacturing to the customer’s specification using the customer’s material, and supply of labour. Points to note:

Transporters who own 10 or fewer goods carriages and give a declaration with their PAN are exempt from TDS.
Purchase of goods made to your specification using the contractor’s own material is a sale, not a contract, so no TDS under this provision. TDS on purchase of goods may apply instead if you are a large buyer.
The ₹1 lakh aggregate test is per contractor for the year. Once crossed, deduct on the whole year’s payments, including earlier ones.

Commission and brokerage

Applies to commission for buying or selling goods or services, other than insurance commission and securities brokerage. It covers real estate brokerage, agents’ commission and C&F agents. Discounts on outright sales are not commission.

Timing: deduct at payment or credit, whichever is earlier

TDS must be deducted when the amount is credited to the payee’s account in your books or paid, whichever happens first. Year-end provisions booked in a party’s account attract TDS on 31 March. Provisions in a general “expenses payable” account also generally require TDS.

The real cost of getting it wrong

Default	Consequence
Not deducted	Interest 1% per month, and you may be treated as an assessee in default
Deducted, not deposited on time	Interest 1.5% per month
Expense disallowance	30% of the expense is disallowed for resident payees (100% for non-residents) until the TDS is paid
Late returns	₹200 per day late fee, plus a possible penalty

Frequently asked questions

Our CA’s annual fee is ₹45,000. Is TDS needed?
No, it is below the ₹50,000 threshold for professional fees. If it crosses ₹50,000 in the year, TDS applies to the whole amount.

We pay a freelancer abroad. Which rules apply?
Payments to non-residents fall under section 393(2) (old 195) and may need Form 145/146 (old 15CA/15CB). DTAA relief can reduce or remove the TDS.

Does a partnership firm deduct TDS on partners’ salary?
Yes. Since 1 April 2025, a firm deducts 10% on salary, remuneration, commission, bonus and interest credited or paid to partners above ₹20,000 in the year.

Want your TDS on vendor payments set up correctly? Garvita Jain & Co. reviews your ledgers, classifies vendors by section and rate, handles monthly deposits and quarterly returns, and fixes past defaults. Contact us here, or at contact@garvitajainandco.com or +91 98678 16597.

This article is general information based on the law as of November 2026 and is not professional advice.

Sources

Official

Professional / CA publications

TDS on Rent, Professional Fees, Contractor Payments and Commission