Meet Gaurav, he became an insurance agent for LIC and also earned a salary for a major part of the year. Gaurav wants to know how he should go about his income tax return? Which income tax return form should he file? How to report Insurance commission income and whether he will be allowed to claim certain expenses in his return.
Gaurav worked for 10 months in financial year 2014-15 with a company and earned a salary of Rs 45,000 per month. Gaurav started working as an insurance agent starting February 2015. The total commission earned by him 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 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 34,000
Deduction: 50% = Rs 17,000
Renewal Commission = Rs 25,500
Deduction: 15% = Rs 3,825
However maximum deduction is limited to Rs 20,000
Do note that no other expnses are allowed to be deducted from this insurance commission.
Refer table below to understand how deduction is calculated when Commission Earned is Less than Rs 60,000
Now come two very important questions –
As an insurance agent – What is Gaurav’s total taxable income?
Which Income Tax Return should he file? Gaurav has also heard about the presumptive method of taxation and wants to know, whether an insurance agent can file ITR-4S?
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 – 20,825 (deductions) = Rs 38,675
Gross total income for Gaurav = Rs 4,88,675
Deductions under section 80 C for Gaurav = Rs 36,000 EPF + Rs 50,000 PPF = Rs 86,000
Total Taxable Income = Rs 4,88,675 – Rs 86,000 = Rs 4,02,675
Gaurav is not eligible to file ITR-4S. 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-4S here). Since Gaurav earns income as an insurance agent – he must file ITR4.
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