Section 194D – TDS On Insurance Commission

Updated on: Apr 27th, 2024

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8 min read

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.  

Latest updates on TDS under Income Tax law

Union Budget 2022 updates

  • New Section 194S- A person is liable for Tax Deduction at Source (TDS) at 1% at the time of payment of the transfer of virtual digital assets.
  • Sale of immovable property under Section 194-IA- It is proposed to amend the amount on which TDS should be deducted. The person buying the property should deduct tax at 1% on the sum paid/credited or the stamp duty value of such property, whichever is higher.
  • New Section 194R- TDS at 10% should be deducted by any person who provides perks or benefits, whether convertible into money or not, to any resident for carrying out any business or profession by such resident.

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.

Note. that this provision applies from 1st June 1973 onwards.

When Is TDS Deducted Under Section 194D?

The deduction of tax on insurance commission under Section 194D is 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 is in cash or cheque or kind.

What Is The Rate Of TDS Under Section 194D?

Section 194D is applicable for all such payments made to a resident, whether they are an individual, company or any other category of persons. The rates of TDS are mentioned below: 

Details

Rate of TDS

Persons other than a company

5%

Domestic Company

10%

  • Surcharge or Cess will not be added to these rates. Therefore, the tax will be deducted at the source at the basic rates mentioned above.
  • The rate of TDS will be 20% in cases where the deductee has not quoted PAN.

When Is TDS Not Liable To Be Deducted Under 194D?

There are two instances when TDS is not deducted under Section 194D:

  • The commission paid does not exceed Rs.15,000.
  • Self-declaration under Form 15G/15H.

Non-deduction Or Low Rate Of Tax Deduction

An individual who receives a commission can apply in Form 13 to the Assessing Officer for a certificate authorising the payer not to deduct any tax or to deduct tax at a lower rate. In accordance with section 206AA(4), no certificate under Section 197 for non-deduction or a lower rate of deduction will be given unless the application also provides the applicant's PAN.  

Due Date To Deposit TDS Under Section 194D

The due date to collect and deposit tax deducted on commission paid to insurance agents is the 7th of next month.

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 the Certificate

April – June

15th August

July – September

15th November

October – December

15th February

January – March

15th June

Related Articles 

  1. Section 194C - TDS On Payment To Contractors
  2. Section 194R - Income Tax Act, Purpose, Applicability, TDS Deductions
  3. Section 194H - TDS On Commission And Brokerage
  4. Income Tax Returns For Insurance Agent
  5. What Is Section 194D & 194DA?

Frequently Asked Questions

Who should deduct tax under Section 194D?

Any person responsible for paying commission for soliciting insurance business should deduct tax under section 194D (includes commission on new, continuance, renewal or revival of insurance policies).

What is the maximum limit upto which no tax needs to be deducted under section 194D?

No tax needs to be deducted if the aggregate amount of insurance commission paid does not exceed Rs. 15,000 in a financial year.

Is TDS under section 194D deductible on Reinsurance commission?

No, section 194D does not cover reinsurance commission.

What was the basic exemption limit u/s 194D before June 1 2016?

Before June 1, 2016, the exemption limit for TDS deduction u/s 194D was Rs. 20,000 for a financial year, and the TDS deduction rates were also different. However, after June 1, 2016, this limit has come down to Rs. 15,000 for a financial year.

How is Section 194DA different from Section 194D?

Section 194D consists of provisions that deal with tax deductions on any commission or reward that insurance agents or brokers receive. Whereas Section 194DA states that any income earned by a resident Indian from the maturity of life insurance policies, including bonus, is subject to a tax deduction. 

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