Section 194D deals with Tax deduction on payment of insurance commission. It is applicable on any person paying any income to a resident by way of remuneration or reward, whether by way of commission or otherwise, for procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance.
Person responsible for paying to a resident commission or otherwise for soliciting or procuring insurance business including continuance, renewal or revival of policies is required to deduct TDS. TDS is required to be deducted at the time of credit of such amount or payment thereof whichever is earlier at the rate of 10%. If the recipient of income doesn’t furnish his PAN to deductor then TDS is to be deducted @ 20%.
TDS is required to be deducted only when the aggregate of the amounts of such income credited or paid or likely to be paid or credited during the financial year exceeds rs. 20,000.
Assessee can apply to assessing officer for no TDS or TDS at lower rate u/s 197.
No adjustments permissible for debits – In case of reversal of commission paid to an agent, no adjustment is allowed to be made from amount of TDS. TDS is to be deducted from the whole of the commission credited or paid without deducting the amount of reversal if any.
If the amount of payment is Rs. 20,000 or less than Rs. 20,000, then no TDS will be deducted. TDS shall be deducted at the time of payment or credit whichever is earlier.
Rate of TDS:
- 10% + surcharges + education cess & higher secondary education cess, if the recipient is resident non-corporate assessee
- 20% + surcharges + education cess & higher secondary education cess, if the recipient is resident corporate assessee
The updated rates of tax Deduction at Source for FY 2015-16 or AY 2016-17 is as under:
| Section | Nature of Payment | Rate-HU/Individual | Rate-Other |
| 194D | Insurance Commission > Rs. 20,000 | 10% | 10% |
| 194DA | (w.e.f. 01/10/2014) Payment in respect of Life Insurance Policy > Rs. 99,999/- | 2% | – |
Related Cases:
S. 194D of IT Act, 1961—TDS—In order to attract S. 194D, the commission or any other payment covered under the section should be a remuneration or reward for soliciting or procuring the insurance business. If any discount is allowed by the insurance company to the insured, that will not fall within the definition of brokerage or commission paid for soliciting or procuring insurance business. The commission paid or allowed as a deduction from gross rate to the insurance companies does not fall within the category of remuneration or reward for soliciting or producing insurance business. The profit commission is on better footings than the ceding commission. The payment is sort of sharing of profit and it does not fall within the ambit of remuneration or reward for soliciting or procuring insurance business. The remuneration or reward should be paid to the solicitor or procurer of insurance business. Since in the present case, solicitor or procurer is the payer and not the payee and, therefore, S. 194D of the Act has no application—General Insurance Corporation of India vs. ACIT [2009] 125 TTJ 779 (ITAT-Mumbai G)
S. 194D of IT Act, 1961—TDS—Where the assessee company has provided reinsurance to the insurance company and if the reinsurance companies have reduced the premium directly from the premium payable by the insured, such a deduction will not attract provisions of S. 194D of the Act. Thus, the provisions of TDS u/s 194D are not applicable to the payment of reinsurance commission by the assessee-insurance company to reinsurance company—Tata AIG General Insurance Co. Ltd. vs. ITO (2011) 140 TTJ 319 (ITAT-Mum.)
S. 194D of IT Act, 1961—TDS—Where the assessee company has provided reinsurance to the insurance company and if the reinsurance companies have reduced the premium directly from the premium payable by the insured, such a deduction will not attract provisions of S. 194D of the Act. Thus, the provisions of TDS u/s 194D are not applicable to the payment of reinsurance commission by the assessee-insurance company to reinsurance company—Tata AIG General Insurance Co. Ltd. vs. ITO (2011) 140 TTJ 319 (ITAT-Mum.)
Reference:
As Per Section 194D. of the Income Tax Act. 1961-
Insurance commission.
- Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :
Provided that no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973:
Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed [twenty] thousand rupees.