Income Tax Return for an Insurance Agent

As a commission-based job, the income of insurance agents largely depends on the number of clients they manage to rope in. If you are an insurance agent, you will want to know how to go about filing your income tax return. This is where all your questions like which income tax return form to file, which regime of tax to be opted for and how to report Insurance commission income and how to claim certain expenses in your return among others are answered. Let’s understand these through a case study.

Read on, if these questions strike a chord with you.

Who will Deduct TDS?

Section 194D requires a taxpayer to deduct TDS when paying a commission to an Indian resident for the following purposes:

a) soliciting or procuring insurance business or

b) commission related to renewal, revival, or continuation of policies.

TDS will be deducted at the rate of 5% if the recipient is an individual/HUF. If the recipient does not furnish the PAN the TDS shall be deducted at the rate of 20%.

When is TDS Not Required to be Deducted?

An entity is not required to deduct TDS if:

a) the commission paid is less than INR 15,000

b) the agent submits a self-declaration under Form 15G/15H stating that the, 

(i) tax calculated on his total income is Nil, or 

(ii) His total income is less than INR 2,50,000, the basic exemption limit for the old regime or his total income is less than INR 3,00,000, the basic exemption limit for the new regime, if he is under the age of 60.

The Rate at Which TDS is Deducted?

1. The above rates were 3.75% and 7.5% from May 14, 2020, to March 31, 2021, respectively.
2. No surcharge or cess shall be charged to the aforementioned prices.
3. If the agent does not quote PAN, the rate is 20%.
4. If the TDS is greater than Rs 50,000 in the last two years and the agent has not filed income tax returns, the TDS rate is doubled of the rate above or 5%, whichever is higher.

No Presumptive Taxation

Agents who earn commission income are not allowed to opt for presumptive taxation under Section 44AD, but they can avail of the ad-hoc deductions as per the case study given below. 

As they are not allowed to opt for presumptive taxation, they may be required to maintain books of accounts under Section 44AA if the receipts/turnover/income crosses the specified limit.

Further, income from commission can either be taxed as “Income from Business or Profession” or “Income from other sources”, depending on whether the agent is conducting on a part-time basis or on a full-time basis.

Understanding Income Tax for Insurance Agents Through a Case Study

Meet Gaurav – He worked for 10 months in the financial year 2022-23 with LIC and earned a salary of Rs 45,000 per month. Gaurav started working as an insurance agent, starting in February 2022. The total commission earned by him that year was Rs 59,500. Out of which Rs 34,000 is earned from commissions from LIC policies (new policies sold and first year’s commissions) and the remaining Rs 25,500 is earned from the renewal of LIC policies.

Since he just started his commission work – he does not maintain any records relating to his agent work. Gaurav also spent Rs 8,500 in telephone calls and commutes, which was spent exclusively in securing these commissions. Gaurav contributed Rs 36,000 to EPF when he was in a job and deposited Rs 50,000 in PPF.

First, let’s help Gaurav find out how his income from being an insurance agent will be calculated.

Adhoc deduction will be available to Gaurav against his commission income, as the commission earned is less than Rs 60,000, the deduction on the first year’s commission is 50% of the commission. In the case of renewal commission, the deduction available is 15%. However, the maximum deduction allowed shall be limited to Rs 20,000.

First year’s commission = Rs 34,000

Deduction: 50% = Rs 17,000

Renewal Commission = Rs 25,500

Deduction: 15% = Rs 3,825

Total Deduction = Rs 20,825 but the maximum deduction will be allowed only up to Rs 20,000.

Do note that no other expense is allowed to be deducted from this insurance commission.

In case, the separate figures (for the first year and renewal commission) are not available then 33 ⅓ % of the gross commission will be allowed as a deduction.

How to Calculate Total Taxable Income?

Taking the figures from the above case study:

As an insurance agent, Gaurav’s total income from salary = Rs 45,000 x 10 = 4,50,000 less 50,000 (Standard Deduction) = 4,00,000

Gaurav’s total income from insurance commission = Rs 34,000 + 25,500 – 20,000 (deductions) = Rs 39,500

Gross total income for Gaurav = Rs 4,39,500

Deductions under section 80C for Gaurav = Rs 36,000 EPF + Rs 50,000 PPF = Rs 86,000

Total Taxable Income = Rs 4,39,500 –  Rs 86,000 = Rs 3,53,500

Which Income Tax Return to File?

Gaurav has also heard about the presumptive method of taxation and wants to know, whether an insurance agent can file ITR-4 or not.

Gaurav is not eligible to file ITR-4. This is because those who carry on business or profession of Income from commission or brokerage or an agency business cannot file ITR-4. Similarly, those who are in the profession of legal, medical, engineering, architectural, accountancy, technical consultancy, interior designing etc (See the list of eligible businesses for which one can file ITR-4 here). Since Gaurav earns income as an insurance agent – he must file ITR3.

Gaurav wrote an email to support@cleartax.in and we filed ITR3 for him.

Write to us support@cleartax.in if you have any questions.

Related Articles

How to Check Income Tax Refund Status Online?

Check your income tax refund status online guide