In this article we shall take a look at tax deductible at source on any income from insurance and how the calculation is to be done.
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 taxation under Section 194 of the Income-tax Act.
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%.
It is important to note here that, 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 occurs 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;
- Soliciting or procuring Insurance of any kind
- Moreover, for help with the continuance, and renewal of insurance policies
- Provides support that helps with the revival of insurance policies
TDS Time Limits and Due Dates
For the 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.
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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
Quarter 2 (July to September) – 31st October
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, 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.
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;
- If the Insurance commission credit does not exceed INR 15,000.
- Additionally, if eligible individuals furnish Form 15G/15H as proof that they have no tax liability on their total income.
- Further, if the aggregate payment for a whole year falls below INR 1000.
- Any sum of money received as a result of the death of a senior by a legal heir is also exempted
- Interested persons may apply through Form No. 13 to request 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.
- Additionally, if the premium for the insurance is less than 10%, 15%, or 20% depending on the stated conditions.
- Further, if the amount is received as a part of the Keyman insurance policy
- 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.
How To Calculate Income Tax Under Section 194DA?
To calculate income tax under Section 194DA, follow these steps: Assume Mr. Siva received ₹10,00,000 upon policy maturity after paying a premium of ₹3,00,000. The taxable income is the difference between the maturity amount and the premium, which is ₹7,00,000. The payer will withhold TDS of ₹35,000, calculated as 5% of ₹7,00,000.
No TDS Requirement
TDS under Section 194D is not required if the total income does not exceed ₹15,000 for the financial year or if Form 15G/H has been submitted.
Conclusion
Taxation as such is a very broad subject. To add to it, every year there are changes and new provisions added to the system to keep abreast with the changes in the industry and the economic atmosphere. So keeping track of the changes in taxation policy and finding out what is applicable and not applicable to you can be quite hectic along with managing your business. So it is always advisable to engage a tax consultant with specialized experience in the field who can guide you and advise you on how to structure your income and tax structure.
Frequently Asked Questions
What is the threshold limit for 194DA?
Section 194DA of the Income Tax Act mandates TDS on insurance policy payouts where the aggregate amount exceeds ₹1 lakh in a financial year. Payouts below this threshold are exempt from TDS, provided the policy is not exempt under Section 10(10D).
What is the maximum limit upto which no tax needs to be deducted under section 194D?
Under Section 194D, no TDS is required if the insurance commission paid does not exceed ₹15,000 in a financial year. This threshold applies to payments made to residents and is aimed at reducing the compliance burden on small-scale insurance agents.
How to claim TDS refund on insurance commission?
To claim a TDS refund on insurance commission, file your income tax return, reporting the income and TDS details. Ensure the TDS certificate (Form 16A) matches the credit in Form 26AS. If the total TDS exceeds your tax liability, the excess amount will be refunded.
What is the TDS limit for insurance commission?
For payments under Section 194D, TDS is deducted at 5% if the annual insurance commission exceeds ₹15,000. This limit is applicable to resident individuals and entities, ensuring that small payments do not attract unnecessary tax withholding.
Is 194DA exempt income?
Income under Section 194DA is not entirely exempt. TDS is applicable on payments from life insurance policies if the amount exceeds ₹1 lakh and the policy does not qualify for exemption under Section 10(10D). The rate of TDS is 5%, applied to the total payout.
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