Insurance policies are a common investment among individuals in India, spanning health, term, and life insurance. These policies can be acquired via individual agents, corporate agents, or brokers. Alternatively, you can directly purchase them from the insurer’s official website. However, if you opt for an agent-assisted purchase, the agent receives a commission or remuneration. This commission falls under the purview of tax deduction at source as per Section 194D of the Income Tax Act, 1961.
Let’s Read from Law first
Insurance commission.
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, whichever 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:
Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed Rs.15000
Let’s know the FAQ for better clarity:
Frequently Asked Questions (FAQs) on TDS under Section 194D
1. What is Section 194D of the Income Tax Act? Section 194D deals with the tax deduction at source (TDS) on any sum paid as commission, remuneration, or reward to an individual agent or insurance intermediary under an insurance policy.
2. Who is responsible for deducting TDS under Section 194D? The person making the payment of commission, remuneration, or reward under an insurance policy is responsible for deducting TDS.
3. Is TDS applicable on all types of insurance policies? Yes, TDS under Section 194D is applicable to all types of insurance policies, including health policies, term insurance policies, and life insurance policies.
4. What is the rate of TDS under Section 194D? The current applicable TDS rate under Section 194D is 5%.
If the deductee fails to quote his/ her PAN to the deductor i.e. the insurance company then the TDS rate will be 20%.
5. Is TDS applicable only on insurance agents’ commissions? No, TDS under Section 194D is applicable not only to commissions but also to remunerations and rewards paid to insurance agents or intermediaries.
6. Are there any exemptions from TDS under Section 194D? Yes, if the total payment during the financial year is less than Rs. 15,000, TDS is not required to be deducted.
7. Can the payee claim a refund of the TDS amount deducted under Section 194D? Yes, the payee can claim a refund of the TDS amount while filing their income tax return if their total tax liability is less than the TDS amount deducted.
8. Can an individual claim a lower TDS rate or exemption under Section 194D? Yes, an individual can submit Form 15G or 15H if their estimated total income is below the taxable limit, and they want to avoid TDS deduction.
9. What is the due date for depositing TDS under Section 194D? The TDS deducted under Section 194D should be deposited to the government by the 7th of the following month.
10. Are insurance companies also liable to deduct TDS under Section 194D? Yes, insurance companies are liable to deduct TDS under Section 194D when making payments to agents or intermediaries.
14. Are there any reporting requirements for deductors under Section 194D? Yes, the deductor is required to issue a TDS certificate in Form 16A to the payee, showing the details of TDS deducted under Section 194D.
15. Can TDS under Section 194D be avoided through certain exemptions? Yes, if the total payment during the financial year is less than Rs. 15,000, and the payee provides their PAN, then TDS is not required to be deducted.
Example
Let’s illustrate a scenario where Mr. Patel purchases a health insurance policy from XYZ Insurance Company. The policy agent, Ms. Khan, helps Mr. Patel select an appropriate policy and assists in the documentation process. For her services, Ms. Khan receives a commission of Rs. 12,000.
However, in this example, Ms. Khan is eligible for an exemption of Rs. 15,000 under Section 194D. This means that TDS is not required to be deducted if the commission amount is less than or equal to Rs. 15,000.
Calculation:
Commission received by Ms. Khan: Rs. 12,000
Since the commission amount (Rs. 12,000) is below the exemption limit of Rs. 15,000, Mr. Patel is not required to deduct any TDS under Section 194D. Ms. Khan will receive the entire commission amount of Rs. 12,000 without any TDS deduction.
And if amount of commission will be Rs.20000 then TDS to be deducted @5% on Rs.20000 = 1000Rs.
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