BLOG on Income Tax Management for - AY 2022-23 & 2023-24

TDS from Insurance Commission (Section 194D)

Provisions of Section 194D towards TDS from Insurance Commission
Who is required to make TDS under Section 194D ?
When TDS under Section 194D has to Deducted ?
Rate of TDS under Section 194D for the Financial Year 2018-19 and 2019-20
Where No TDS is to be Deducted under Section 194D
Where the Tax is either not to be Deducted or to be Deducted at Lower Rate [Section 197 Rule 28 and 28AA]:
Reinsurance not covered by section 194D -

1. Provisions of Section 194D towards TDS from Insurance Commission

The Provisions of Section-194D towards Tax Deducted At Source (TDS) From Insurance Commission [ Section 194D] are given below---

Who is the taxpayer

Any person paying Insurance Commission

Who is the recipient

A resident person

Payment covered

Insurance Commission

At what time tax has to be deducted at source

At the time of payment or at the time of credit, whichever is earlier.

Maximum amount which can be paid without Tax Deduction

Any amount which is Rs. 15,000, or Less

(to be calculated on aggregate basis for the entire Financial Year)

Rate of TDS

Resident Person other than Company	5%
Domestic Company	10%

Is it possible to get the payment without tax deduction or with lower tax deduction

The recipient can make an application in Form No.13 to the Assessing Officer to get a certificate of lower tax deduction or no tax deduction.

TDS from Insurance Commission (Section 194D)

2. Who is required to make TDS under Section 194D ?

The person responsible for paying to a Resident, the income mentioned below.

Remuneration or reward whether by way of commission or otherwise—

for soliciting or procuring insurance business, or
for continuance, renewal or revival of policies of insurance.

Payment to Non-Resident shall be covered under Section 195

3. When TDS under Section 194D has to Deducted ?

At the time of credit of commission income to the account of payee or
the payment thereof in cash or by issue of a cheque or draft or by any other mode,

whichever is Earlier.

4. Rate of TDS under Section 194D for the Financial Year 2018-19 and 2019-20

Payee whose payment will suffer TDS	Rate of TDS
Resident Person other than Company	5%
Domestic Company	10%

Notes:

No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.

Section 194D applies in relation to all such payments made to a resident whether individual, company or any other category of person. These provisions do not restrict the deduction of tax at source to insurance commission paid only to individuals.

5. Where No TDS is to be Deducted under Section 194D

(A) When insurance commission paid or credited does not exceed Rs. 15,000:

No tax is to be deducted if the amount or the aggregate amounts of such income does not exceed Rs.15,000 in a financial year.

(B) Where a self declaration under Form No. 15G/15H is furnished by a particular person [Section 197A(1A), (1B) and (1C)]:

A person, other than a company or firm may furnish a declaration in writing in duplicate in new Form No. 15G to the payer to the effect that there is no tax payable on his Total Income. In this case, the payer shall not deduct any tax at source.

However, as per section 197A(1B), the assessee cannot furnish the declaration under this clause if the aggregate amount of the following incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to tax:

Payment from accumulated balance of recognized provident fund, if taxable.
Interest on securities.
Interest other than interest on securities.
Payment in respect of life insurance policy, if taxable.
Insurance commission
Payment in respect of deposit under National Saving Scheme.
Payment in respect of rent.

As per section 206AA(2), declaration under Form No. 15G or 15H shall not be valid if it does not contain the Permanent Account Number (PAN) of the declarant. In case any declaration becomes invalid, the deductor shall deduct the tax @ 20% except where the payment is made from accumulated balance of recognised provident fund where it will be deducted at the maximum marginal rate.

The payer of the income is required to deliver to the Principal Commissioner or Commissioner one copy of declaration given under new Form 15G on or before the 7th day of month next following the month in which the declaration is furnished to him.

6. Where the Tax is either not to be Deducted or to be Deducted at Lower Rate [Section 197 Rule 28 and 28AA]:

Any person to whom commission is payable may make an application in Form No. 13 to the Assessing Officer and obtain such certificate from him, as may be appropriate, authorising the payer not to deduct tax or to deduct tax at a lower rate.

As per section 206AA(4), no certificate under section 197 for deduction of tax at Nil rate or lower rate shall be granted unless the application made under that section contains the Permanent Account Number (PAN) of the applicant.

7. Reinsurance not covered by section 194D -

Reinsurance differs from insurance in a number of ways and the most important is that there is no contractual relationship between the Direct Insured and the Reinsurer.

There are separate contracts involved—one between the Insured and the Insurer and another between the Insurer and the Reinsurer. Insurer has to pay all valid claims to the insured, irrespective of whether the insurer can recover the same from his reinsurer.

When an Reinsurance company gets business from insurance company at premium less “Commission”, the “Commission” is not subject to TDS under section 194D, as it is not payable to an agent for procuring insurance business.

Similarly, when “Profit Commission” is payable by an Reinsurance Company to an insurance company, after the expiry of the term of insurance, in respect of such cases where there is no claim during the operation of the reinsurance treaty, TDS under section 194D is not required.