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Section 194D – TDS on Insurance Commission

Last Update Date : November 12, 2018

It is evident that the best way to ensure one’s life is through an Insurance as the same suggests it protects you from all the types of risks and losses. In India, most of us choose an insurance through insurance agents, brokers, adjusters etc. So, in this comprehensive guide, we would enlighten about Section 194D-TDS on Insurance Commission.

section 194D

The Scope of the Section 194D

Section 194D lays down the provisions and responsibilities of any person who is authorised to pay any income by way of remuneration or reward to a resident. In short, it deals with TDS on insurance commission.

Who is Liable to deduct TDS under Section 194D?

Deduction of tax must be performed by a person who is responsible to make payments to a resident, in terms of remuneration or reward, whether by way of commission or else, for the following purposes:

  • Petitioning or obtaining insurance business
  • Continuance, renewal or revival of policies of insurance

When is the Tax to be Deducted under Section 194D?

The tax is to be deducted on insurance commission under section 194D earliest of the following:

  • The tax is to be deducted at the time of credit of commission in the account of payee, or
  • the payment in cash or cheque or in kind.

What is the Time of Deposit?

  • In case the deduction is by or on behalf of the government, then TDS deducted is to be deposited on the same day of deduction.
  • In any other case, TDS must be deposited within one week from the end of the month in which such deduction was made.
  • In case, the deduction is made on March 31st, which is the end of the financial year, TDS has to be deposited within two months from the end of the financial year in which it is credited or paid.
  • For some cases, the Assessing officer on your application may allow deduction of TDS on quarterly basis i.e. 15th July, 15th October, 15th January, and 15th April.

What is the Exemption Limit?

With effect from 1st June 2016 the exemption limit is Rs 15,000, earlier it was Rs 20,000.

What is the Rate of TDS?

Details From 1st June,2016 Before 1st June,2016
Threshold Limit 15,000

 

20,000
If PAN is furnished 5% 10%
If PAN is not furnished 20% 20%
  • Assessee can apply to assessing officer for no TDS or TDS at a lower rate under Section 197.
  • In case of reversal of commission paid to an agent, no adjustment is allowed to be made from the amount of TDS.
  • TDS is to be deducted from the whole of the commission credited or paid without deducting the amount of reversal if any.

The Issue of TDS Certificate and Time Limit

All deductors must ensure the appropriate and timely issue of certificates, except for salaries. The certificate must be issued within the following dates:

Due Dates for a Non-Government Deductor

Months Deadline for issuing certificates
April –June 30th July
July –September 30th October
October- December 30th January
January –March 30th May

Due Dates for a Government Deductor

Months Deadline for issuing certificates
April –June 15th August
July –September 15th November
October- December 15th February
January –March 30th May

A Brief Note on Section 194DA

This Section states that, tax shall be deducted at source (TDS) on pay-outs to Resident Indian customers, if the cumulative pay-out across all policies which are not exempt under section 10(10D) equals or exceeds Rs 1 lakh in a financial year.

  • In case PAN is available and valid, 2% TDS will be applicable.
  • In case PAN is invalid or not available, 20% TDS will be applicable.
  • In case your life insurance policy qualifies for Sec 10(10D), no TDS will be deducted.

Note: Any amount received by the legal heirs in the event of a death is fully exempt under Section 194DA. With effect from June 1st, 2016 the effective TDS rate has been reduced from 2% to 1%

Frequently Asked Questions

What would be the significances where no Tax is deducted at source?

Tax Deduction isn’t pursued with respect of the following provisions:

  • Insurance commission paid or credited, not exceeding Rs 15,000.
  • A person other than a company or firm may furnish a declaration in writing in Form No. 15G/15H to the payer stating that there is no tax payable on his/her total income, subject to conditions.

What are the cases where TDS u/s 194D is not exempted?

In the following cases TDS u/s 194D is not exempted

  • If insurance premium is greater than 10% or 15% or 20%.
  • Any sum received under Section 80DD (3) or Section 80DDA (3).
  • Any sum received under a Keyman insurance policy.
  • Any sum received under an insurance policy issued on or after the 1st of April, 2003, but on or after the 1st of April 2012, where the premium payable for any of the years during the term of the policy exceeds 10% of the capital sum assured.

What to do if the tax is deducted but the ultimate tax liability of the payee is nil or lower than the amount of TDS?

In such a case the payee can claim the refund /or excess amount of TDS (as the case may be).

What are the TDS rates applicable for different types of income?

The rates are different for different types of income.

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