Section 393(1) of The Income Tax Act 2025 – Payment to Resident

Section 393(1) of The Income Tax Act, 2025 is a master of rule for TDS (Tax Deducted at Source) on payment made to resident. In simple words, it tells you when you must deduct tax before paying someone, how much tax to deduct, and when to deduct it. Instead of having various of separate sections like in Income Tax Act 1961, this section has put different types of payments into one table—like rent, property payments, commission, interest, professional fees, dividends, e-commerce payments, etc.

The basic idea behind it is very simple:

If you pay certain types of income to a resident person, the Government wants a small deduction of tax to be collected in advance.

The basic rule — when TDS becomes compulsory

TDS becomes compulsory only when all these things happen together:

• You are making a payment that is listed in the table of this section 393 (rent, commission, interest, fees, etc.).

• The payment is made to a resident.

• The amount crosses the threshold limit mentioned for that payment.

• You are the type of payer mentioned (any person / specified person / company / bank, etc.).

• If even one condition is missing, TDS is not required to deduct from payment.

When exactly should tax be deducted?

The law states that you must deduct tax at the earlier of two events:

• When you credit the amount to the payee’s account (even if not paid yet), or

• When you actually pay the money (by cash, cheque, bank transfer, or any mode).

This rule exists so that people cannot avoid TDS deduction simply by delaying payment.

Who will be payer?

The section talks about different persons who liable to deduct TDS:

· Specified person - A person who is not an individual or HUF, or an individual/HUF who is required to deduct tax because of business/professional turnover conditions.

· Any person – other than specified person

Why threshold limits exist

The Government does not want people to deduct TDS on small or routine payments. That is why almost every payment has a minimum limit. For example:

• Small rent → no TDS

• Small interest → no TDS

• Small professional fees → no TDS

Only when the payment crosses the threshold does the obligation start. This reduces compliance burden for ordinary people.

Let’s discuss the various Income/ payments made to the resident

1. Commission or Brokerage

Nature of Income / Payment                                                                         TDS                    Threshold limit

Insurance commission                                                                                     2%                          20,000

Other commission/brokerage (only when paid by a specified person)    2%                         20,000

2. Rent

Rent is treated differently based on who pays and what is rented. If you are not a specified person, and you pay rent exceed INR 50,000 per month (or part of month), you deduct TDS at the rate of 2% only once, in the last month of the year or last month of tenancy. This rule is designed mainly for individual tenants so they don’t have to deduct tax every month. If you are a specified person (like a business entity, person who liable to audit under Income Tax Act) and you pay amount exceed INR 50,000 per month (or part of month), then:

Type of transaction                                                                                 Rate                    Threshold limit

Land/building (specified person)                                                         10%                        50,000 pm

Machinery / plant / equipment                                                              2%                          50,000 pm

Non-specified person                                                                             2%                           50,000 pm

3. Transfer of Immovable Property

Transfer of immovable property means sale, purchase, or transfer of rights in land or building (other than agricultural land). Whenever property changes hands for money or consideration or compensation, the Income-tax Act steps in to ensure that tax is collected at the time of transaction.

 When someone (like builder, compulsory acquisition,) buy immovable property (other than agricultural land), the law makes the buyer responsible for deducting tax. So in below situation buyer need to deduct TDS on payment to seller:

• Development agreement (section 67(14)) - When an individual or HUF gives land or building to a builder under a development agreement, and in return receive consideration in some flats and some cash

                                                       o On stamp value of flats plus any cash received when completion                                                                 certificate (or even for part of project) is issued without any threshold                                                           limit → 10% TDS

• Compulsory acquisition under any law for the time being in force

                                                       o Compensation or consideration exceeds INR 5 lakh → by any person                                                          liable to pay 10%  TDS

•      Property (other than agriculture land) – Other than above 2 points

                                             o Higher of stamp duty of such property or consideration of property                                                        exceeds INR 50 lakhs →  By the buyer to deducts 1% TDS

4. Income from capital market

Nature of Income / Payment                                                                 TDS Rate            Threshold limit

Income from Mutual Fund units or units of specified

government / notified companies – Any Person                                     10%                        10,000

Distributed income paid by a Business Trust (like REIT / InvIT) to

unit holders – Business Trust                                                                       10%                        No limit

Income paid by an Investment Fund to its unit holders (except

exempt portion) – Investment Fund                                                            10%                         No limit

Income paid by a Securitisation Trust to its investors – Securitisation

Fund                                                                                                                    10%                        No limit

5. Interest Income

Nature of Income / Payment                                                                        TDS                    Threshold limit

Interest on Securities                                                                                      10%                        10,000

Bank / post office interest (senior citizen)                                                  10%                        100,000

Bank / post office interest (other than above)                                            10%                        50,000

Interest (other than above)                                                                              10%                        10,000

6. Payments to contractors, fees for professional and technical services, etc.

· Payments to contractors

o Contractors usually work on thin margins and handle large volumes. The law therefore applies low TDS rates (1% or 2%), and allows deduction only after amounts cross certain limits. This ensures business cash flow is not choked.

Contractor                                                              TDS

Individual / HUF                                                       1%

Others                                                                        2%

Threshold limit:

        Single bill > ₹30,000 or

         Total > ₹1,00,000 in a tax year

· Other payments

o Professional services (lawyer, CA, doctor, architect, consultant), and it depend on personal expertise and judgment.

o Technical services (IT support, system maintenance, technical operations), and are often system-driven or routine,

Nature of Income / Payment                                                                  TDS                        Threshold limits

Professional fees                                                                                      10%                              50,000

Technical fees (non-professional)                                                           2%                               50,000

Director remuneration other than Section 392                                      10%                            No Limit

Royalty (sale, distribution or exhibition of cinematographic films)     2%                             50,000

Royalty (other than above)                                                                         10%                           50,000

· Non-specified person

Nature of Income / Payment                                                                    TDS                      Threshold limits

Professional fees                                                                                         2%                         50,00,000

Payment to Contractors                                                                              2%                         50,00,000

Commission (other than insurance commission or brokerage)           2%                         50,00,000

7. Dividend

Nature of Income / Payment                                                                   TDS Rate          Threshold limit

Dividend income (including preference share dividend)

– Domestic Company                                                                                 10%                        No limit

8. Other Case

Nature of Income / Payment                                                                           TDS Rate          Threshold limit

Life insurance payout (including bonus, taxable portion only)

– Any person paying                                                                                               2%                    1,00,000

Purchase of goods where total purchase exceeds ₹50 lakh

– Buyer                                                                                                                    0.1%               INR 50 lakh

Total income of specified senior citizen handled by bank

– specified bank                                                                                               Slab Rate            As applicable

Business benefit or perquisite (cash or kind) given to resident

– specified person                                                                                                10%                        20,000

Sale of goods or services through e-commerce platform

– E commerce operator                                                                                       0.1%                       No limit

(on gross amount)

Transfer of virtual digital asset (crypto, NFT, etc.) – Any person                     1%                       No limit

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