Section 194DA of the Income Tax Act: TDS on Insurance Commission

Last Updated at: Nov 10, 2020
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194DA of the Income Tax Act
The CBDT has recently issued an order furnishing information about IT Return Filing Status to Scheduled Commercial Banks. The Income Tax Department has already provided a functionality “Verification of applicability under section 194” on its website for banks since July 1, 2020. Through this, banks or post offices can get the applicable rate of TDS under section 194 of the Income-tax Act, 1961 by entering the PAN of the person withdrawing cash.

 

Insurance policies give relaxation and security. People take insurance policies not only for themselves but also for their families. In India, usually people choose their insurance policies via agents. Here, the incentive received by the broker & agent is subject to Income Tax Act on the taxation under Section 194 of the Income tax Act.

  1. Section 194DA of the Income Tax Act

  2. Deduction of Tax on Insurance Commissions

  3. TDS Rates for Insurance Commissions

  4. TDS Time Limits and Deadlines

  5. Issue of TDS Certificate 

  6. Eligibility for TDS of Insurance Commissions Under Section 194DA

  7. TDS Deduction Example

Section 194DA of the Income Tax Act

Section 194DA of the Income Tax Act contains guidelines for the calculation, exemption, and collection of TDS for insurance commissions and premium payments. Moreover, any individual or firm who pays a resident Indian any amount upon the maturity of a life insurance policy (including bonus) will suffer a tax deduction at the  rate of 1%. Further, the amount paid will not include any income shown under Section 10 D of the Income Tax Act. 

However, the Union Budget 2019 proposed to raise the TDS deduction rate to 5% on the income comprising the proceeds paid or payable on maturity of a policy. If PAN is not submitted, the TDS can be deducted at the maximum marginal rate of 20%. 

Please note:

Any individual who pays an Indian resident a remuneration for anything related to the insurance business will be liable to deduct tax as per Section 194DA. Additionally, the deduction will occur at the earliest in the form of:

  • Credit into payee’s account
  • Actual payment via cheque, cash, draft or any other mode of payment

TDS Rates for Insurance Commissions

Sl No Type Rate
1 Any resident other than companies 5%
2 Domestic companies 10%
3 Any case with no PAN quotes 20%

 

Furthermore, the above-mentioned rates will not have the addition of any surcharge, SHEC, or education CESS. Hence, the TDS for insurance commission payments occur at the base rate of the source.

Who Deducts Tax on Insurance Commissions?

The person responsible for the deduction of tax is the person who makes payments to a resident. These payments may be in the form of remuneration or reward and are paid out either as a commission or otherwise. Moreover, the payment of such commission or compensation occurs as a result of the following actions;

  1. Soliciting or procuring Insurance of any kind
  2. Moreover, for help with the continuance, and renewal of insurance policies
  3. Provides support that helps with the revival of insurance policies 

TDS Time Limits and due dates:

  1. For deposit of TDS with the Government
  • The TDS deducted must be deposited within 7 days from the end of the month in which the said deduction has occurred. 
  • Similarly, if the deduction is made in the month of March, the TDS must be submitted on or before 30th April. 
  • Likewise, the officer in charge of the assessment is at liberty to process these deductions every quarter. 

For filing TDS returns

The deductee must file quarterly TDS returns in Form 26Q. The due dates for every quarter are mentioned below –

  • Quarter 1 (April to June) – 31st July
  • Further, quarter 2 (July to September) – 31st October
  • Likewise, quarter 3 (October to December) – 31st January
  • Quarter 4 (January to March) – 31st May

The CBDT (Central Board of Direct Taxes) has provided a much-needed breather for the taxpayers facing hardships amidst the COVID-19 disruption. Moreover, as per a Govt. notification issued on 21st June, 2020, the due date for filing individual income tax returns for the Financial Year 2019-20 (Assessment Year 2020-21) has been extended from  31st July  2020 to 30th November, 2020.

Moreover, to provide further relief to taxpayers, the CBDT, on 29th July, 2020,   has extended the deadline for filing the Income Tax Returns for FY 2018-19 by 2 more months. Now, the taxpayers can file both the original and revised returns for the Assessment Year 2019-20 (FY 2018-19) till September 30th, 2020, instead of the previous deadline of 31st July.  

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Issue of TDS Certificate 

All people tasked with deductions should ensure that they issue the TDS certificates on time to the recipient, except for those related to salaries. Further, here is a look at the timeline for the issuing of the TDS certificates for Insurance commissions.

For Non-Government recipients

Sl No TDS Certificate Period TDS Certificate Deadline
1 Between April and June By 30th of July
2 Between July and September  By 30th of October
3 Between October and December By 30th of January
4 Between January and March By 30th of May

 

For Government recipients

Sl No TDS Certificate Period TDS Certificate Deadline
1 Between April and June By 15th of August
2 Between July and September  By 15th of November
3 Between October and December By 15th of February
4 Between January and March By 30th of May

 

Eligibility for TDS exemption on Insurance Commissions Under Section 194DA

As per Section 194DA of the Income Tax Act, there is no deduction in the following circumstances;

  1. If the Insurance commission credit does not exceed INR 15,000.
  2. Additionally, if eligible individuals furnish Form 15G/15H as a proof that they have no tax liability on their total income.
  3. Further, if the aggregate payment for a whole year falls below INR 1000.
  4. Any sum of money received as a result of the death of a senior by a legal heir is also exempted
  5. Interested persons may apply through Form No. 13 to request for a lower tax rate and even for tax exemption. Moreover, after successful approval, the individual will have to obtain a Certificate of Acceptance from the Assessment Officer. Further, this option is only available to people who have quoted their PAN on the application. 
  6. Additionally, if the premium for the insurance is less than 10%, 15%, or 20% depending on the stated conditions
  7. Further, if the amount is received as a part of the Keyman insurance policy 
  8. As per Section 10 (10 D), proceeds of maturity of an insurance policy will be exempted from tax if the sum assured is at least 10 times the annual premium. Moreover, for policies issued prior to April 2012, the premium must be below 20% of the sum assured, to qualify for the exemption. 

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