Section 194D Of The Income Tax Act: Rate Of Deduction And Due Dates

Income Tax

Insurance policies are excellent options to cover the expenses that you might incur from medical emergencies. 

Individuals often buy an insurance policy either through a broker or an agent. These brokers and agents often receive commissions, other rewards and remunerations. Such income is taxable under Section 194D of the Income Tax Act.  

Here’s an overview of Section 194D.

Rate of Deduction u/s 194D

TDS deduction under Section 194D is to be made on all payments that are made to any resident. Such a resident can be an individual, a company or any other person. Here is the rate of TDS deduction that is applicable under Section 194D: 

• 5% for any person other than companies
• 10% for any domestic company

Since there is no applicable surcharge or SHEC along with these rates, TDS deduction takes place only at the basic rates as stated above. However, TDS deduction will occur at a 20% rate if the deductee does not provide PAN details.

Also Read – Income Tax On Income Earned From Fixed Deposits

Between May 14 2020, and March 31 2021, the rate of TDS deduction as per Section 194D for non-company individuals stood at 3.75%. 

Who Can Deduct TDS u/s 194D?

TDS deduction under Section 194D of the IT Act can be deducted by any entity that is making a payment to a resident individual as a reward or remuneration, in the form of a commission for: 

• Obtaining o soliciting insurance business
• Revival, renewal or continuing of insurance policies

When is TDS Deduction under Section 194D not Applicable?

TDS deductions as per provisions of Section 194D cannot happen under the following circumstances:

• If the amount of commission is not more than Rs. 15,000
• In case of self-declaration under Form 15G or Form 15H

Also Read – How To Save Income Tax On Salary?

When to Deduct TDS u/s 194D?

TDS is deducted on insurance commission as per Section 194D depending upon whichever of the two following events come earlier:  

• The deductor makes a payment in cash, cheque or in kind
• At the time when the commission gets credited to the payee’s account

Due Dates for the Issuance of TDS Certificates 

The due date for the collection as well as deposition of the TDS that is deducted on the insurance commission is the 7th day of the month following the month of payment. 

The deductor has to issue a TDS certificate to the deductee after depositing the tax to the government. This TDS certificate would include details regarding insurance commission payments and TDS deducted on it. Here are the last dates to issue a TDS certificate by a deductor:  

However, the government may extend the due dates whenever necessary. 

Low TDS Deduction u/s 194D

Individuals receiving a commission on insurance can seek tax deduction at a lower rate under Section 194D. For this, they have to submit an application in Form 13 to an Assessing Officer to get a certificate asking the payer to make low or no TDS deductions. 

However, as per Section 206AA(4), you cannot get a certificate authorising lower or zero TDS deduction unless you provide a PAN. 

Final Word

Insurance agents or brokers receiving commissions or any kind of financial reward should be aware of the provisions of Section 194D. They should also make sure to obtain TDS certificates from their deductor after TDS deposition.

Frequently Asked Questions

What is the penalty for non-deduction of TDS under Section 194D?

If the deductor is unable to deduct the necessary TDS from payments they make as remuneration or commission to insurance agents, then they are liable to pay interest. They have to pay an interest of 1% for each month or part of a month from the date of TDS deduction till the actual date on which such deduction takes place. 

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

The exemption limit for TDS deduction u/s 194D stood at Rs. 20,000 for a financial year before June 1 2016. 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.

Is tax deduction on reinsurance applicable under Section 194D?

No, the provisions of Section 194D do not apply for reinsurance. This is because reinsurance is different from insurance in various ways. There is no relation between a reinsurer and a directly insured individual. When any reinsurance company gets business from an insurance company, the commission it receives does not qualify for tax deduction as per Section 194D.

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. 

Does Section 194D apply to non-resident individuals?

No, provisions of Section 194D are not applicable to any non-resident individual. However, there is a different section (Section 195) that consists of provisions for TDS deduction on payments towards non-resident individuals. 

Will there be any relief on TDS deduction in case of commission reversal by the payer?

No, there is no relief on TDS once the deductor makes the TDS deduction and submits it to the government. However, the payee who receives the commission can claim a refund against their total tax liability while filing income tax returns. 

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.