Insurance can go a long way when it comes to mitigating the financial crunch caused due to medical emergencies. Therefore, it is advisable to take an insurance policy not only for oneself but for one’s dependents as well. Most times people choose their insurance via agents, brokers, etc. In such cases, the insurance commission or any other remuneration/reward received by such agents, brokers etc., are subjected to Tax Deducted at Source (TDS) as dictated under Section 194D of the Income Tax Act.
1. Eligibility of deduction under Section 194D
The tax must be deducted by the entity who makes the payment to the resident person, as remuneration/ rewards, by the way of commission or for the following purposes:
- Soliciting or obtaining insurance business
- Continuance, renewal or revival of policies of insurance.
2. When is TDS deducted under Section 194D?
The deduction of tax on insurance commission under Section 194D based on which of the following comes earlier:
- tax is deducted at the time of credit of commission in the account of the payee, or
- the payment in cash or cheque or in kind.
3. What is the rate of TDS under Section 194D
Section 194D is applicable for all such payments made to a resident whether they are individual, company or any other category of persons. The rate of TDS are mentioned below:
|Details||Rate of TDS|
|Persons other than a company||5%|
The TDS rate under section 194D is 3.75% for non-company deductees and 10% for domestic company deductees for payments from 14 May 2020 until 31 March 2021.
- Surcharge or SHEC will not be added to these rates. Therefore, the tax will be deducted at source at the basic rates mentioned above.
- The rate of TDS will be 20% in cases where the deductee has not quoted PAN.
4. When is TDS not liable to be deducted under 194D
There are 2 instances when TDS is not deducted under Section 194D:
- Commission paid does not exceed Rs 15,000
- Self-declaration under Form 15G/ 15H
5. Non-deduction or lowered rate of tax deduction
An individual who receives a commission can make an application in Form 13 to the Assessing Officer for a certificate authorizing the payer no to deduct tax or to deduct tax at a lower rate.
In accordance with section 206AA(4), no certificate under Section 197 for non-deduction or lowered rate of deduction will not be given unless the application also provides the PAN of the applicant.
6. Due Dates for issuing TDS certificates
The deductee/ recipient will receive TDS certificates summarising the insurance commission payments and the TDS thereon. The due dates for receipt of TDS certificates are mentioned below:
|Months||Deadline for issuing certificate|
|April – June||15th August|
|July – September||15th November|
|October – December||15th February|
|January – March||15th June|
The due date for TDS returns for Q1 and Q2 of FY 2020-21 stand extended to 31 March 2021. Accordingly, the due date to issue TDS certificates will be 15 April 2021.