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.
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:
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.
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%.
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:
TDS deductions as per provisions of Section 194D cannot happen under the following circumstances:
TDS is deducted on insurance commission as per Section 194D depending upon whichever of the two following events come earlier:
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:
Months | Due Date for TDS Certificate Issue |
April-June | August 15 |
July-September | November 15 |
October-December | February 15 |
January-March | June 15 |
However, the government may extend the due dates whenever necessary.
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.
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.
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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.
Ans: 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.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
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.
Public Provident Fund (PPF) – Know PPF Details and Its Benefits
In 1968, the National Savings Institute introduced the PPF scheme. The Public Provident Fund (PPF) ... Read More »How to Withdraw PF Amount? – Step-by-Step Guide
EPF (Employees Provident Fund) is a popular savings scheme for employees in India. The Central Gove... Read More »Previous Year in Income Tax: Exceptions on Taxation
‘Previous Year’ in the Income Tax Act, 1961 is an important concept associated with the payment... Read More »What are Capital Receipts and What are its Types?
The concept of a receipt is easy to understand as it is described as a written record that a paymen... Read More »What is Anti-Dumping Duty (ADD) – Its Working, Examples and Calculation
Anti-dumping duty refers to a tax or other charges levied on a particular imported product. The con... Read More »Loan to Purchase Land – Types, Features, Eligibility and Documents Required
Loans for land purchase or plot loans are secured loans given for purchasing plots of land. Borrowe... Read More »List of 11 Tax-Free Income Sources in India (2023)
There are many sources through which a person can earn his/her income. It can be income from salary... Read More »New GST Rates in India (2023) – Latest Changes in GST Rates
GST or the Goods and Services Tax is one of the most significant tax reforms to be ushered in since... Read More »What is Input Tax Credit (ITC) in GST – Eligibility and Documents Required To Claim ITC
GST is consumption-based taxation levied at all stages in a value chain. Set-off of GST paid in the... Read More »What is Cess on Income Tax: Overview, Types and Calculation
Cess is a tax on taxes imposed by the Central Government or state governments for specific reasons.... Read More »Section 80EEB: Eligibility & Deduction Amount
Electric vehicles are better for the environment and an efficient alternative to fuel-run vehicles.... Read More »What is Section 80GGA: Deductions on Donations Made for Rural Development
Income Tax Act provides several opportunities for taxpayers to claim partial or full deductions. Se... Read More »Top 10 Chit Fund Schemes in India in 2023
Chit funds are one of the most popular return-generating saving schemes in India. It is a financial... Read More »10 Best Gold ETFs to Invest in India in February 2023
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Top 10 Demat Accounts in India [Lowest Brokerage Charges]
A Demat account was created to eliminate the time-consuming and inconvenient procedure of purchasin... Read More »20 Best Index Funds in India to Invest in 2023 (Updated on 31st Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »Best Arbitrage Mutual Funds to Invest in India: Returns and Taxation
Arbitrage funds are hybrid mutual fund schemes that aim to make low-risk profits by buying and sell... Read More »Best SIP Mutual Funds To Invest In India (2023) – Its Types And Taxation
A Systematic Investment Plan (SIP) is a convenient way to invest a fixed sum in mutual funds. For i... Read More »10 Best Corporate Bond Funds in India 2023 – With Returns
Corporate bond funds are debt funds that invest at least 80% of the investment corpus in companies ... Read More »10 Best Banks for Savings Account in India (2023)
A savings account keeps your money safe, and lets you earn interest every quarter. There are many b... Read More »All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.
Start Small. Dream Big.
Start your Investment Journey with just ₹10