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Income Tax Return Filing For Insurance Agents

Understanding Income Tax for Insurance Agents

Income tax return is a statement of income and tax that needs to be submitted by taxpayers to the Income Tax Department in the prescribed form. The different forms available include ITR - 1 SAHAJ, ITR - 2, ITR - 3, ITR - 4 Sugam, ITR - 5, ITR - 6 and ITR - 7. Insurance agents are required to file their returns using ITR - 3. In this article, we will look into how insurance agents need to go about filing income tax returns.

TDS on Commission

Insurance agents typically earn money in the form of commissions from the sale of insurance policies. Now, similar to how income tax is levied on salaries, it is charged on the insurance commission earned by the agents. Section 194D of the Income Tax Act, 1961, pertains to the TDS applicable on insurance commission. As per this Section, tax deduction must be undertaken by an entity responsible to make payments to a resident, in terms of remuneration or reward, be it by commission or otherwise, for the purpose of i) petitioning or obtaining insurance business or ii) continuance, renewal or revival of policies of insurance.

Calculating Total Taxable Income for Insurance Agents

Total taxable income is calculated by first adding up the income from different heads and then subtracting the deductions under Chapter VI-A. The result will be the total taxable income. To ascertain the tax liability, one must apply the tax rates (to the total taxable income) relevant for the financial year when the income has been calculated.

To find out the taxable commission, individuals are advised to use the Income Tax Department's Taxability of Agent Commission facility available on its website.

Mr. Arjun made Rs. 50,000 in first year commission and Rs. 8,000 in renewal commission. Upon entering these details in the online calculator, he got the following results:

  • Total commission earned – Rs. 58000
  • Total commission from LIC – Rs. 58000
  • Ad hoc Deduction – Rs. 20000
  • Taxable Commission – Rs. 38000

Which Income Tax Return to File for Insurance Agents

Insurance agents earning commission are required to file their returns using ITR - 3. It is essential to note that an entity whose income is by way of commission or brokerage cannot adopt the presumptive taxation scheme of Section 44AD. Now, given that insurance agents typically earn money in the form of commission, they cannot adopt the presumptive taxation scheme of Section 44AD.

Some of the details that need to be filled in ITR - 3 are:

  • General information and Nature of Business
  • Balance Sheet as of March 31, 2019 of the Proprietary Business or Profession
  • Profit and Loss Account for the financial year 2018-19
  • Computation of income from business or profession

Source: Income Tax Department

There are two ways by which returns can be filed through ITR - 3. Once the returns are filed, the taxpayer will receive an acknowledgement in ITR V from the Income Tax Department. A signed copy of the form has to be sent to the Income Tax Department’s CPC office in Bangalore.

Frequently Asked Questions

Will an insurance agent be able to adopt the presumptive taxation scheme of Section 44AD?

An individual who is earning income in the form of commission or brokerage cannot adopt the presumptive taxation scheme of Section 44AD. Given that insurance agents make money by way of commission, they will not be able to adopt the presumptive taxation scheme of Section 44AD.

What kind of businesses are not eligible for presumptive taxation scheme?

Section 44AD is designed to provide relief to small taxpayers involved in any business, other than the following:

  • A business that deals with hiring, plying or leasing of goods carriages (covered in Section 44AE).
  • An entity running any agency business.
  • An entity earning income in the nature of commission or brokerage
  • A business whose total turnover or gross receipts surpasses Rs. 2 crores.

How do LIC agents file their income tax returns?

Since LIC agents receive commission from insurance company, they can file their returns using ITR - 3.

Who can deduct TDS under Section 194D?

Tax can 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 following reasons:

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

What is the percentage of TDS that 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.

Under what conditions will TDS not be deducted?

If an insurance agent's tax on total income is nil, he or she can submit Form 15G and Form 15H to prevent TDS deduction on income. Form 15H can only be submitted by senior citizens i.e. those above the age of 60 years, while Form 15G can be filled by everybody else.

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