Income Tax Return for an Insurance Agent

As a commission-based job, 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 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 an entity to deduct TDS when paying a commission to an Indian resident for the following purposes:

a) soliciting or procuring insurance business

b) business by way of renewal, revival, or continuation of policies.

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 tax calculated on his total income is Nil, or his total income is less than INR 2,50,000, the basic exemption limit, if he is under the age of 60.

The rate at which TDS is deducted?

1. The above rates will be 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 but the agent has not filed income tax returns, the TDS rate is doubled or 5%, whichever is higher.

Understanding Income Tax for Insurance Agents Through A Case Study

Meet Gaurav – He worked for 10 months in the financial year 2017-18 with LIC and earned a salary of Rs 45,000 per month. Gaurav started working as an insurance agent, starting in February 2018. 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 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 commute, 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 how his income from being an insurance agent will be calculated.

If the commission earned is less than Rs 60,000, the deduction on the first year’s commission is 50% of the commission. In 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 upto Rs 20,000.

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

In case, the separate figures are not available then 33 ⅓ % of the gross commission will be allowed as deduction.

How to Calculate Total Taxable Income?

Taking the figures from above case study:

As an insurance agent, Gaurav’s total income from salary = Rs 45,000 x 10 = 4,50,000

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

Gross total income for Gaurav = Rs 4,89,500

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

Total Taxable Income = Rs 4,89,500 –  Rs 86,000 = Rs 4,03,500

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-4S. 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.

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