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Section 194D covers payments made by way of any remuneration/reward in the form of commission or otherwise for procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance). The deduction must be made at the time of crediting the money to the payee’s account or at the time of payment in the form of cash, cheque, draft, or any other mode. Tax is deductible only if the amount paid or payable or the aggregate of the amounts of such income paid or payable during the financial year exceeds Rs 15,000.
Any person who makes a payment to a resident Indian in the form of remuneration or reward as part of insurance business should deduct tax.
Tax is deducted at the earlier of the following cases:
According to Section 194D, the tax is deducted at different rates based on the type of payee:
If the payee has not quoted PAN, the tax will be deducted at the rate of 20%. You must also know that surcharge and SHEC will not be applicable to these rates.
Tax need not be deducted from the amount the payer credits to payee’s account in the following cases:
Any payment to be made to a resident Indian upon the maturity of a life insurance policy including the bonus, other than the amount included in the total income under clause (10D) of Section 10, will suffer a tax deduction at source. The tax must be deducted at the rate of 1%.
Any person who makes a payment to a resident Indian upon maturity of a life insurance policy will deduct the applicable taxes at source under Section 194DA.
Tax is deducted at 1% at the time of making the payment to the payee.
The union budget 2019 has proposed to amend the TDS on insurance policy proceeds to 5% on the amount of income comprised in the proceeds paid or payable upon maturity.
There is no need to deduct taxes if the aggregate payable amount is within Rs 1 lakh.
For example, consider Mr V received a maturity amount of Rs 8 lakh from his life insurance policy. Mr V has paid an amount of Rs 3 lakh as premium for the policy over a period of 10 years. In this case, the maturity amount is above Rs 1 lakh. Hence, the maturity proceeds will be paid after deducting 1% TDS. In this case, the TDS would be Rs 8,000. After deduction, Mr V will receive Rs 7,92,000.
If you are a commission earner from an insurance business, you can send Form 13 to the assessing officer requesting for a certificate that authorises the payer to not deduct tax or deduct at a lower rate. This provision is available under Section 197.
However, Section 206AA(4) says that the non-deduction or lower deduction rate is not applicable unless the applicant has quoted PAN.
The deductee/recipient will receive TDS certificates summarising the insurance commission payments and the TDS thereon.