Section 194D – TDS On Insurance Commission

Updated on: Jul 23rd, 2024

3 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.

Budget 2024 Update

The TDS rate has been proposed to reduce to 2% from 5%.

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

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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.