An insurance policy is bought very often by individuals in India. An insurance policy could be a health policy, a term insurance policy, or a life insurance policy. You can buy your insurance policy through an individual agent, corporate agent, or broker. Alternatively, you can also buy an insurance policy directly by visiting the insurance company’s official website. When you buy an insurance policy through an agent the agent received a commission, remuneration, or a reward. Such a commission, remuneration, or a reward attracts tax deduction at source under section 194D on Income Tax Act, 1961.
Eligibility of TDS Deduction Under Section 194D on Insurance Commission
A person who is responsible for making a payment to a resident of India for the following income must deduct TDS:
An income by way of remuneration or reward or commission:
- for soliciting or procuring insurance business
- for business relating to the continuance, renewal, or revival of an insurance policy
Section 194D of the Income Tax Act, 1961 is applicable only to a resident of India being an individual, HUF, company, or any other taxpayer. The TDS on an insurance commission paid to a non-resident in India is covered under section 195.
Time of Deduction of TDS Under Section 194D
The person liable to deduct TDS must deduct TDS:
- at the time of crediting such income to the account of the agent or the payee
- At the time of paying the agent in cash, cheque, demand draft, or any other mode of payment
Whichever is earlier
TDS Rate on Insurance Commission Under Section 194D
TDS under section 194D on insurance commission is applicable to every assessee who is a resident like an individual, HUY, AOP/ BOI, company. Every deductor or insurance company must deduct TDS u/s 194D at the following rates:
Points to Remember:
- The TDS must be deducted at the basic above tax rates. You need not add a surcharge, education cess, or secondary and higher education cess.
- The TDS rate for A resident taxpayer (not being a domestic company) for the period 14 May 2020 until 31 March 2021 is 3.75%. There is no change in the TDS rate for a deductee or payee who is a domestic company.
- If the deductee fails to quote his/ her PAN to the deductor i.e. the insurance company then the TDS rate will be 20%.
|Type of Payee||TDS Rate|
|A resident taxpayer (not being a domestic company)||5%|
TDS not to be Deducted Under Section 194D
A deductor or an insurance company must not deduct TDS under section 194D in the following cases:
- The total amount paid to the payee or the agent in a financial year is less than Rs 15,000
- The payee or the agent has provided Form 15G/ Form 15H as a self-declaration for no deduction of TDS.
Lower Deduction or No Deduction of TDS
The agent can submit an application to the assessing office in Form 13. This application will be treated as a certificate authorizing the payer not to deduct TDS or deduct TDS at a lower rate. As per section 206AA(4), the assessee must provide his/ her PAN number to receive a certificate under Section 197 for non-deduction or lowered rate of deduction. In case the declaration is invalid then the deductor will have to deduct TDS at a rate of 20%.
The deductor will have to deliver a copy of Form 15G to the Principal Commissioner or Commissioner. The declaration must be submitted on or before the 7th day of month following the month in which the deductor received the declaration.
Failure to Deduct TDS Under Section 194D
In case the deductor of TDS fails to deduct TDS while making a payment then interest is applicable. The deductor needs to pay an interest @ 1% per month or part of the month from the date on which the TDS was deductible till the date of actual deduction.