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Section 194D of the Income Tax Act mandates that tax be deducted at source on payments of commission or reward to insurance agents. This provision aims to ensure timely payment of taxes by deducting a portion of the commission amount paid to insurance intermediaries at source.
Insurance policies are the backbone of unexpected financial expenses. They soften the punch during rough times. So, every person should consider buying an insurance policy for themselves and their family.
Generally, people buy insurance from an agent or a broker. Section 194D provides TDS (Tax Deducted at Source) on all commissions or any other payment or reward earned by these agents/brokers. This blog analyses Section 194D of the Income Tax Act and its benefits.
What is Section 194D?
Section 194D of the Income Tax Act covers the deduction of TDS on insurance commissions. As per this section, any person responsible for paying a resident any income through insurance commission must deduct tax at source. The person deducting tax must pay the deducted amount to the government within the prescribed timelines.
This is required only when the total of the amounts of such income credited/paid or likely to be paid/credited during the financial year exceeds ₹15,000.
Eligibility for Section 194D
Eligible persons must have one of the following income types for TDS deduction:
- The income by way of remuneration, reward, or commission.
- For soliciting or procuring insurance business.
- For business related to the insurance policy's continuance, renewal, or revival.
Section 194D applies only to Indian residents who are individuals, Hindu Undivided Family (HUF), companies, or any other taxpayer. The TDS on the insurance commission paid to the non-resident in India is covered under Section 195.
The two parties eligible under Section 194D are:
- Insurance agent: Any resident individual receiving commission or remuneration for insurance business.
- Insurer: The entity (insurance company, etc.) pays a commission to the agent responsible for deducting TDS.
Rate of TDS Deduction Under Section 194D
The rate of TDS deduction under Section 194D is:
- 5% - If the payee is an individual or HUF receiving a commission.
- 10% - If the payee is a domestic company receiving a commission.
- 20% - If the PAN of the payee is not furnished.
When is TDS Deduction Applicable Under Section 194D?
- At the time of credit of commission income to the payee's account.
- At the time of commission payment to the payee, if the payment is made in cash, cheque, draft or any other mode.
When is TDS Not Deductible Under Section 194D?
TDS is not deductible under 194d of Income Tax Act in the following two instances:
- When the insurance commission paid or credited to the payee does not exceed ₹15,000 in a financial year.
- When a self-declaration in Form 15G/15H has been furnished by the payee to the effect that their total income is below the taxable limit, no tax is payable.
However, as per Section 197A(1B), the assessee cannot furnish Form 15G if the aggregate of certain income types, including insurance commission, exceeds the maximum amount not taxable for the relevant assessment year.
Due Date to Deposit TDS Under Section 194D
The due date to deduct and deposit the TDS on insurance commission under Section 194D of the Income Tax Act is the 7th of the next month. This means if TDS is deducted from the insurance commission in March, the due date to deposit the deducted TDS amount with the government would be the 7th of April of the next financial year.
Due Date to Issue TDS Certificates
Months |
Deadline for Issuing the Certificate |
April - June |
August 15 |
July - September |
November 15 |
October - December |
February 15 |
January - March |
June 15 |
Form 13 and 15G
Form 13 allows an individual earning commission to apply to the Assessing Officer for a certificate authorizing lower or no deduction of TDS under Section 197. It gives relief to the applicant from a higher TDS deduction than what is required.
On the other hand, Form 15G is a self-declaration submitted by the payee to the payer stating their total income is below the taxable limit and no tax is payable. Submitting a valid Form 15G exempts the payer from deducting TDS under section 194D. However, as per section 197A (1B), certain conditions need to be met, like an aggregate of incomes, like commission, should not exceed the maximum amount not taxable.
Exemptions Under Section 10 (10D)
Any amount received under the LIC policy is exempted, including bonus amounts. Any funds received by Section 80DD(3) or 80DDA(3) are exempted. If a LIC policy was purchased before April 1, 2012, and the premium paid is over 20% of the sum assured, the maturity amount is tax-exempt. For policies purchased after April 1, 2012, tax is exempted if the premium is over 10% of the sum assured.
LIC policies with a premium over 15% of the total sum insured are exempted if purchased after April 2013 for disabled people as defined in Section 80U or 80DDB. There is no upper limit for tax exemption under Section 10 (10D) as long as the above conditions are fulfilled.
Conclusion
Section 194D of the Income Tax Act covers TDS deduction on commissions or rewards received for procuring insurance business. This provision aims to ensure timely payment of taxes by deducting a portion of the commission amount paid to insurance intermediaries at source. Compliance with section 194D is important for both deductors and deductees.
