Section 194D – TDS On Insurance Commission
When it comes to alleviating the financial strain brought on by medical emergencies, insurance can be quite helpful. For this reason, it is wise to purchase insurance for both oneself and one's dependents. Most of the time, consumers use brokers, agents, etc. to select their insurance. Under Section 194D of the Income Tax Act, the insurance commission or any other compensation or reward that such agents, brokers, etc. get is subject to Tax Deducted at Source (TDS). It has been suggested that the TDS rate be lowered from 5% to 2% in the Budget 2024 Update. In this article, we will share a complete overview of Section 194D of the Income Tax Act.
Table of Contents
What is Section 194D?
TDS on insurance premiums or any of the following payments are covered by Section 194D:
Any payment or incentive, whether in the form of a commission or another kind.
For the company that purchases insurance.
This deduction must be made when funds are credited to the payee's account or when payments are made by check, cash, draft or another method. Only when the total amount (money) of such income paid or payable during the fiscal year exceeds Rs. 15,000 and the amount paid or payable is deducted from taxes.
Eligibility for Section 194D
The entity that pays the resident person must deduct the tax as compensation or rewards, commission, or for any of the following reasons:
Asking for or getting insurance business.
The continuation, renewal, or resuscitation of insurance coverage.
However, you have to take note that this clause is effective as of June 1, 1973.
TDS Rate Under Section 194D
All such payments made to residents, whether they be individuals, businesses, or other types of people, are subject to Section 194D. The following lists the TDS rates:
Individuals other than a company: 5%
Domestic companies: 10%
These rates will not include a surcharge or cess. As a result, the tax will be subtracted at the source using the previously stated basic rates. In situations when the deductee has not provided a PAN, the TDS rate will be 20%.
When is TDS Deducted under Section 194D
Section 194D's deduction of insurance commission tax is determined by which of the following occurs first:
When the payee's account is credited with the commission, tax is subtracted.
The payment can be made in cash, cheque, or in kind.
When is TDS Not Deducted under Section 194D
TDS is not withheld under Section 194D in two situations:
The commission paid is no more than Rs. 15,000 in total.
Self-disclosure on Form 15G/15H.
No Deduction/Low TDS Rate under Section 194D
A commission-receiving individual may submit an application on Form 13 to the Assessing Officer for a certificate allowing the payer to either deduct no tax or to do so at a reduced rate. Section 206AA (4) states that unless the application includes the applicant's PAN, no certificate under Section 197 for non-deduction or a lesser rate of deduction will be granted.
Due Date To Deposit TDS and Issue TDS Certificates under Section 194D
The seventh of the next month is the deadline for collecting and depositing the tax withheld from commissions paid to insurance agents. TDS certificates describing the insurance payments and TDS associated with them will be given to the deductee or recipient. The following are the deadlines for receiving TDS certificates:
April–June: August 15th
July–September: November 15th
October– December: February 15th
January–March: June 15th
Form 13 and 15G
An individual receiving commission may seek a certificate from the Assessing Officer granting a lower or no deduction of TDS under Section 197 using Form 13. It protects the applicant from a larger than necessary TDS deduction. Form 15G, on the other hand, is a self-declaration that the payee submits to the payer, saying that no tax is due because their total income is below the taxable limit. The payer is exempt from deducting TDS under section 194D if they submit a valid Form 15G. However, some requirements must be fulfilled by section 197A (1B), such as the total amount of income, including commissions, not exceeding the maximum amount exempt from taxes.
Exemptions Under Section 10 (10D)
Bonuses and other sums received under the LIC policy are excluded. Section 80DD (3) and 80DDA (3) exclude any money received. The maturity amount of a LIC policy is tax-exempt if it was acquired before April 1, 2012, and the premium paid exceeds 20% of the sum insured. If the premium for a policy purchased after April 1, 2012, exceeds 10% of the sum guaranteed, tax is not due. If LIC policies are obtained after April 2013 for disabled individuals as described by Section 80U or 80DDB, they are excluded from paying premiums that exceed 15% of the total sum covered. If the requirements are met, there is no upper limit on the tax exemption under Section 10 (10D).
Conclusion
TDS deduction on commissions or awards paid for acquiring insurance business is covered by Section 194D of the Income Tax Act. By withholding a portion of the fee given to insurance intermediaries at the source, this clause seeks to guarantee prompt tax payment. For both deductors and deductees, adherence to section 194D is crucial.
FAQ
Q1. Who should deduct tax under Section 194D?
Section 194D requires tax deductions for anybody who pays a commission for recruiting insurance business, including commissions for new, continuing, renewal, or revival insurance policies.
Q2. What is the maximum limit up to which no tax needs to be deducted under section 194D?
If the total amount of insurance commission paid in a fiscal year is less than Rs. 15,000, no tax must be withheld.
Q3. How is Section 194DA different from Section 194D?
Provisions about tax deductions on commissions and rewards received by insurance agents or brokers are found in Section 194D. In contrast, Section 194DA stipulates that any income—including bonuses—that an Indian resident receives from the maturity of life insurance plans is deductible from taxes.
Q4. What is the difference between 194D and 194H?
It is crucial to remember that the insurance commission is covered by Section 194D and not Section 194H. Either when credit is provided in the book or when payment is made, whichever comes first, there is an obligation for TDS.
Q5. What was the basic exemption limit under Section 194D before June 1, 2016?
Before June 1, 2016, the TDS deduction rates were also varied, and the exemption limit for TDS deduction under section 194D was Rs. 20,000 for a fiscal year. After June 1, 2016, nevertheless, this cap was reduced to Rs. 15,000 for a fiscal year.
Q6. Is TDS under section 194D deductible on the Reinsurance commission?
No, the reinsurance commission is not covered by section 194D.
Q7. Where to show 194D income in ITR?
If you are an insurance agent and receive a commission, you will receive it after a certain amount of tax, known as TDS, has been subtracted. TDS will be subtracted in line with Act section 194D. Your Form 26AS will indicate this TDS amount.
Q8. Which type of income is 194D?
TDS on insurance commission is essentially covered by Section 194D. Any money received through: Any compensation or incentive, whether in the form of a commission or another to solicit or acquire insurance business, including transactions about the continuation, renewal, or revival of insurance policies.
Q10. What is Section 194D of the Income Tax Act?
Section 194D mandates the deduction of TDS on insurance commission payments made to agents or intermediaries.
Q11. Who is responsible for deducting TDS under Section 194D?
The person or entity paying the insurance commission is responsible for deducting TDS before making the payment.
Q12. What is the current TDS rate under Section 194D?
TDS is deducted at 5% on insurance commission payments if the recipient provides their PAN, or at 20% if PAN is not provided.
Q13. Are there any exemptions under Section 194D?
No TDS is deducted if the total insurance commission during the financial year does not exceed ₹15,000.
Q14. Does Section 194D apply to all types of insurance commissions?
Yes, it applies to commissions paid for life, general, and health insurance policies, among others.
Q15. How are Budget 2025 changes expected to impact Section 194D?
Budget 2025 may revise exemption limits, TDS rates, or compliance requirements related to insurance commissions.
Q16. Is TDS under Section 194D refundable?
If the deducted TDS exceeds the taxpayer’s liability, it can be claimed as a refund while filing the income tax return.
Q17. What are the penalties for not deducting TDS under Section 194D?
Non-compliance may attract interest, penalties, and disallowance of expenses under the Income Tax Act.
Q18. How does Section 194D affect individual insurance agents?
TDS reduces the upfront commission payment received by agents, but they can claim it as a tax credit when filing returns.
Q19. Will Budget 2025 simplify compliance for insurance agents?
There are expectations that Budget 2025 might introduce measures to ease compliance for small insurance agents.
Q20. What documents are required for TDS compliance under Section 194D?
Deductors need the recipient's PAN and details of payments, while recipients should maintain Form 16A for claiming TDS credit.
Q21. Are GST-registered agents also liable under Section 194D?
Yes, GST registration status does not impact the applicability of TDS on insurance commissions.
Q22. What is the due date for depositing TDS under Section 194D?
TDS deducted must be deposited with the government by the 7th of the following month in which the deduction was made.
Q23. Has Budget 2025 proposed any relief for micro-insurance commissions?
Speculations suggest the government might introduce exemptions or lower TDS rates for micro-insurance commissions in Budget 2025.
Q24. How can insurance agents ensure compliance with Section 194D?
Agents should share accurate PAN details, track TDS deductions, and regularly check their Form 26AS for proper credit.
Related Posts
See AllIn India, one of the major components of income tax is tax deducted at source, or TDS. In order to prevent tax evasion and guarantee a...
It is essential for business owners to comprehend the tax rules that impact their organisations. Section 179 of the Income Tax Act is...
תגובות