Everything you need to know about TDS Deduction on Insurance Commission under Section 194D

TDS on Insurance Commission

Life is uncertain. Insurance provides the insured peace of mind when in distress. Life insurance will provide financial security for your beloved ones in case of any eventuality. Health Insurance will provide for any emergency medical expenses, which would otherwise burn a hole in your pocket.

Normally people prefer to procure insurance through brokers or agents to simplify the process. The commission or remunerations received by the insurance agents is subject to TDS under Section 194D of the Income Tax Act. You will get a complete overview of the TDS on insurance commission in this article.

Understanding Section 194D

Insurance companies hire agents and brokers to solicit insurance business for the company. The lengthy process of buying either life insurance or health insurance is simplified if procured through these agents. These agents are paid a certain percentage of commission for the insurance business created for the company.

Persons making the payment of commission or other remuneration to the insurance agent or broker should deduct TDS on the insurance commission as per Section 194D.

Applicability under Section 194D

A person or entity who makes payment to a life insurance or health insurance agent or broker in the form of commission or other remuneration should deduct TDS under Section 194D. The commission or any remuneration could be for the following:

• Procuring or soliciting insurance business. If a life insurance business has been procured, the deduction will be TDS on the insurance commission for the life insurance business. If a health insurance business has been procured, the deduction will be by way of TDS on the health insurance commission paid.
• Revival, renewal, or continuance of a policy.

The TDS deduction applies only to the commission paid to HUF, companies, resident individuals or other taxpayers. Section 194D is not applicable for commissions paid to non-resident Indians.

What is the Time of Tax Deduction under Section 194D?

Anyone responsible to deduct TDS from any resident Indian, HUF, company or another taxpayer should deduct the TDS

• while crediting the commission or
• while making payment vide cheque or cash.

whichever case is earlier.

Rate of TDS Deduction under Section 194D

Section 194D applies to commissions paid to resident individuals, HUF, companies, or any other resident taxpayer. The threshold limit for the TDS deduction is Rs. 15000/-. It means if the commission paid during a financial year does not exceed 15000/- then, TDS need not be deducted. For commission payments that exceed Rs. 15000/- in a financial year, the deduction rate is given below:

For non-companies i.e., individuals: 5% on the insurance commission paid.
For domestic companies: 10% on the insurance commission paid.

The TDS deduction rate under Section 194D for a commission paid to non-companies was 3.75% and 10% for domestic companies for the remuneration from 14th May 2020 to 31st March 2021.

• For the TDS rates mentioned above, a surcharge or SHEC will not be applicable. Tax will be deducted at the source at the base rates alone.
• The TDS rate will be 20% if PAN is not quoted.

Exemption under Section 194D

TDS will not be deducted for the commissions paid to insurance agents or brokers under Section 194D in the following cases:

• If the commissions paid for a financial year do not exceed Rs. 15000/-
• If the agent/ broker has submitted self-declaration under form 15H/15G.

Procedure for Making an Application for Non-Deduction or Lower Rate of Deduction

There is a provision for making any application for non-deduction or a lower rate of TDS deduction. The following procedure has to be followed for the purpose:

• You should file an application using Form 13 with the Assessing Officer (TDS) seeking permission. Form 13 can be filed either online or manually. This online filing has been enabled in Mumbai, Tamil Nadu, and Karnataka for faster processing and issuance of certificates.
• Correct and complete details have to be provided in Form 13 for faster processing and issuance of the certificate.
• While giving the invoice to the deductor, enclose the certificate for the deductor to justify non-deduction or a lower rate of deduction.

Penalty for Late Deduction of TDS

If the deductor fails to deduct the TDS under Section 194D on the date of payment, a penalty of 1% per month or part of the month from the date on which the TDS was deductible till the date of actual deduction will be collected.

TDS Payment and Returns Filing

The TDS deducted under Section 194D has to be deposited to the government before the prescribed timeline. The timeline for TDS payment is given below:

For TDS deducted between April to June: For the deductions done during this period, the quarter ends on 30th June. The TDS deposit has to be made on or before the 7th of the subsequent month i.e., the 7th of July.

For TDS deductions between July to September: The quarter for this period ends on the 30th of September and the deposit has to be made on or before the 7th of October.

For TDS deductions between October to December: The quarter for this period ends on the 31st of December. The TDS deposit has to be made on or before the 7th of January

For TDS deductions between January to March: The quarter for this period ends on the 31st of March. The TDS deposit has to be made on or before the 7th of April.

Similarly, the timeline for TDS Returns Filing will be on or before the 15th of the month after the quarter ends i.e., the 15th of July, 15th of October, 15th of January, and 15th of April respectively.

Conclusion

Under Section 194D, TDS has to be deducted on commission or remuneration paid to agents or brokers for either life insurance or health insurance business. Such deductions have to be made by any individual or company, that makes such payments if the payments made to the agent/broker exceeds Rs. 15000/- in a financial year. TDS deducted have to be deposited to the government and the TDS returns filed within a prescribed timeframe. A penalty of 1% per month or part of a month will be collected for late deductions.

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