Insurance is a contract between the insurance company & the insured, that on happening of certain events the insurance company will protect the insured financially (in full or in part).
Insurance is usually sold by an insurance agent who is approved by the insurance company.
For their services, the insurance agents receive commission upon selling of Insurance contracts.
This commission which an insurance agent receives against selling of insurance contract is subject to TDS under section 194D as per the Income Tax Act.
Example 1 – Mr. A (Insurance Agent) sale insurance contract of ABC Insurance Ltd to various persons & earns commission of Rs. 1,00,000 from ABC Insurance Ltd.
Suppose TDS rate is 3.75% then tax will be deducted @3.75% on Rs. 1,00,000 which equals to Rs. 3,750. This amount of TDS (Rs.3, 750) will be deposited to the government and Mr. A will be paid Rs. 96,250( net of TDS) by ABC Insurance Ltd.
Mr. A can see this TDS deducted in 26AS by logging Into his Income tax account.
And at the time of Income tax return filing this amount of TDS Will be adjusted from the total tax liability of the Mr. A.
Who is liable to Deduct TDS?
TDS must be deducted by the company or an entity who pays commission to a resident for obtaining an Insurance Contract on its behalf or Renewal of insurance policy. Or, any payment made to procure insurance business.
When TDS is deducted U/S 194D?
TDS is deducted at the time of credit of commission in agent’s account or in payment, whichever is earlier.
TDS Rates on insurance commission?
- TDS u/s 194D is deducted @3.75% (earlier @5%) on the commission paid to agent or any other company. (TDS rate has been reduced to 3.75 % due to covd-19 from 14/05/2020 till 31/03/2021.)
- TDS @20% will be deducted if the agent does not furnishes his PAN No. to the Insurance company.
When is section 194D is not applicable?
TDS is not deducted in below cases:
- When insurance commission paid upto Rs. 15000
- Agent furnishes declaration u/s 197 for short/no deduction of TDS.
Example 2 – If Mr. A sale Insurance contact of ABC Insurance Ltd. to Mr. B & earns commission of Rs. 14,000 then TDS will be not be deducted as the commission amount does not crosses the limit of Rs. 15,000.
Example 3 – If Mr. A sale Insurance Contract of ABC Insurance Ltd. to Mr. B & earns commission of Rs. 22,000 and he furnishes certificate u/s 197 for no deduction of TDS. Then TDS will not be deducted.
Example 4 – If Mr. A sale a Insurance contact to Mr. B & earns a commission of Rs. 68,000. Suppose TDS rate is 3.75%, Mr. A refused to furnish his PAN details to the Insurance Company ABC Ltd. then tax will be deducted @20% on Rs. 68,000 which equals to Rs. 13,800.
This amount of TDS (Rs.13,800) will be deposited to the government and Mr. A will be paid Rs. 54,400 ( net of TDS).
Due to Covid -19 The Finance Minister has reduced to rate of TDS by 25% to ensure more funds in the hands of Insurance agents , so from 14/05/2020 to 31/03/2021 TDS on Insurance commission U/S 194D is reduced to 3.75% (earlier it was 5%)