TDS on Insurance
Commission (Section 194D of the Income Tax Act
Person responsible for tax deduction at source:
Any person responsible for paying insurance
commission to a resident.
Meaning of Insurance Commission: The word, “insurance commission” is not defined in the Act.
However, in Section 194D, it is indirectly defined as the 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).
When TDS is required to be deducted:
At the time of credit of such income to the
credit of the payee or at the time of payment thereof by way of cash or by way of issue of cheque or draft or
by any other mode, whichever is earlier.
When no deduction is required: When a single payment or the aggregate of the payments made
during the financial year does not exceed Rs.15,000. In case the aggregate of payments exceeds Rs.15,000, TDS
has to be made on the total payments/credits during the financial year.
Further, in case the payee applies to the Assessing Officer
in Form 13 and obtains the certification of no deduction of tax from the Assessing Officer and furnishes the
same to the person responsible for payment, no TDS needs to be made irrespective of the fact that the aggregate
of payments or a single payment exceeds Rs.15,000.
In case the payee furnishes Form 15G/15H.
Rate of tax deduction: If payee is a Company, the TDS rate is 10% and if the payee
is a person other than a Company, TDS is at the rate of 5%.
Whether adjustment can be made for debits in agent’s account
while deducting tax: A doubt was
raised whether at the time of deduction of tax at source from the insurance commission credited to the agent’s
account, adjustment for the debits made earlier is permissible or not. The CBDT is of the view that in such
cases, adjustment for intervening debits is not possible. A plain reading of Section 194D suggests that the
deduction of tax has to be made from the amount credited or paid. If the credits to the account are made
subsequent to the making of the debits, the deductions will have to be made from the full amount credited.
Vide Circular No.120 dated 06.10.1973.
Provisions of Section 194D do not restrict the deduction of
tax at source from insurance commission paid to individuals alone. Vide Circular No.121 dated
Reinsurance Commission: In General Insurance Corporation of India Vs Asst. CIT
(TDS) 28 SOT 453 (Mum-Trib), it was held that income tax authorities were not justified in holding that
assessee was liable under Section 194D to deduct tax at source on reinsurance commission payments paid to
reinsurance companies. This is because the business of insurance and reinsurance are inter-related and the
arrangement between the assessee and the reinsurers was on principal-to-principal basis and there was no agency
business which was contemplated under Section 194D.
Foreign travel costs borne by the insurance
company: Where assessee insurance
company organised foreign travel for insurance agents, foreign travelling and hauling expenditure incurred by
the assessee did not constitute an incentive or reward in the hands of individual agent, therefore, assessee was
not liable to deduct tax at source under Section 194D. Vide SBI Life Insurance Co Ltd Vs DCIT (TDS) in ITA
No.s 6492 to 6494/Mum/2012 (Mumb Trib) 2016.