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Income Tax on Insurance Commission

Insurance agents typically make a living in the form of commissions from the sale of insurance policies. Now, similar to how income tax is levied on salaries and wages, it is charged on the insurance commission earned by the agents and salespersons. Section 194D of the Income Tax Act, 1961, pertains to the TDS applicable on insurance commission.

According to Section 194D, “Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, which-ever is earlier, deduct income-tax thereon at the rates in force: Provided that no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973.”

TDS on Insurance Income

Under Section 194D of the Act, tax is deducted on insurance commission, based on which among the following two takes place first:

  • at the time of credit of commission in the payee’s account or

  • at the time of payment in cash or cheque or in kind

The rate of TDS applicable are as follows:

DetailsRate of TDS
Persons other than a company5%
Domestic Company10%

The rate of TDS shall be 20% in cases where PAN has not been quoted by the deductee.

Time Limit

In case the deduction is on behalf of or by the government, then TDS needs to be deposited on the same day of deduction. In any other case, the tax deducted at source must be deposited within a week from the end of the month when such deduction was made.

If the deduction is made on March 31st, then TDS has to be deposited within two months of the end of the financial year when it is paid or credited. The assessing officer may also decide to process the deductions on a quarterly basis.

Issuing TDS Certificate and Time-Limit

All deductors have to make sure that certificates are issued promptly and on a timely basis. The certificates have to be issued within the following dates:

Non-Government Deductor:

  • The due date for issuing certificates for the April-June period is 30th July.
  • The due date for issuing certificates for the July-September is 30th October.
  • The due date for issuing certificates for the October-December period is 30th January.
  • The due date for issuing certificates for the January-March period is 30th May.

Government Deductor:

  • The due date for issuing certificates for the April-June period is 15th August.
  • The due date for issuing certificates for the July-September period is 15th November.
  • The due date for issuing certificates for the October-December is 15th February.
  • The due date for issuing certificates for the January-March period is 30th May.

When no Tax is Deducted at Source?

TDS is not deducted in the following cases:

  • The insurance commission paid or credited is below Rs. 15,000.
  • A person other than a company or firm may provide a declaration (in writing) in Form No. 15G/15H to the payer, mentioning that no tax is payable on his or her total income, subject to conditions.

Frequently Asked Questions

What happens if a deductor fails to deduct TDS or after deducting the same does not deposit it with the government account?

An entity would have to bear the following consequences in case he or she fails to deduct TDS or after deducting the same does not deposit it with the government:

a) Disallowance of expenditure b) Levy of penalty c) Levy of interest

What is the limit of exemption?

The exemption limit is Rs. 15,000 with effect from 1st June 2016. Previously, the limit was set at Rs. 20,000.

What happens when tax is deducted but the payee’s final tax liability is zero or lower than the TDS amount?

Here, the payee can claim the refund /or excess TDS amount (whichever the case may be).

Under what circumstances will TDS not be deducted?

TDS will not be deducted in case of the following provisions:

  • The insurance commission paid or credited is not greater than Rs. 15,000.
  • A person, other than a company or firm, may provide a declaration in writing in Form No. 15G/15H to the payer, mentioning that no tax is payable on total income, subject to conditions.

Who is required to deduct TDS under Section 194D?

Tax must be deducted by an entity who is responsible to make payments to a resident, in terms of reward or remuneration, whether by commission or otherwise, for the below reasons:

  • Petitioning or obtaining insurance business
  • Renewal or revival of insurance plans

What percentage of TDS is deducted?

The deductor is required to deduct TDS at the rate of 5% in case of persons other than a company and 10% for domestic company. An assessee can apply for nil deduction of TDS or deduction at a lower rate under Section 197 of the Income Tax Act, 1961.

Which income tax return should be filed by insurance agents earning commission?

Individuals earning income from commission or brokerage are required to file ITR3.

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