Section 194D - TDS on Insurance Commission

Insurance does go a long way when it comes to mitigation during a financial crisis that has been caused by medical emergencies. Therefore, it is best advised to take an insurance policy not only for yourself but also for dependents as well.

Most of the time, people would choose to get insurance through agents, brokers, and more. In these cases, the insurance commission or other remunerations that have been received by such agents and brokers will be subject to TDS under 194D of the Income Tax Act.

Meaning of 194D TDS

Section 194D covers TDS on Insurance Premium or any of the payments that are mentioned below:

  • Any remuneration or reward that is in the form of commission or otherwise.
  • For the procuring insurance business.

This deduction needs to be made during the time of crediting the money to the payee's account or at the time of payments in the form of a cheque, cash, draft, or any other mode. The tax is deductible only when the amount that is paid or is payable or the aggregate of the amount (money) of such income paid or payable during the financial year is more than Rs. 15,000.

Who is Eligible for Section 194D of the Insurance Commission

The person that is responsible for making a payment to a resident of the country for the following income needs to deduct TDS:

The income by way of remuneration, reward, or commission:

  • For soliciting or procuring insurance business.
  • For business related to the continuance, renewal, or revival of the insurance policy.

Section 194D is applicable only to Indian residents who are individuals, HUF, companies, or any other taxpayer. The TDS on the insurance commission paid to the non-resident in India is covered under Section 195.

What are the Time Limits of the Deduction of TDS for Section 194D?

Someone who is liable to deduct TDS needs to deduct TDS:

- at the time of crediting such income to the account of the agent or the payee.

- during the time of paying the agent in the case, cheque, DD, or any other payment.

Whichever one comes first.

Rate of TDS Deduction Under Section 194D

Section 194D is applicable to a resident irrespective of whether they are individuals, a company, or any other category of people. The TDS rate under Section 194D is as follows:

  • 5% - for people who are not companies
  • 10% - for the domestic companies
  • 20% - when the payee does not furnish PAN

Form 13 and 15G

The agent may deliver a Form 13 application to the assessment office. This application will be regarded as a certificate granting the payer permission to withhold TDS or to withhold it at a reduced rate.

According to section 206AA(4), in order to get a certificate under Section 197 for non-deduction or a reduced rate of deduction, the assessee must supply his or her PAN number. The deductor must withhold TDS at a rate of 20% in the event that the declaration is invalid.

A copy of Form 15G must be delivered by the deductor to the Principal Commissioner or Commissioner. The declaration must be turned in no later than the seventh day of the month after the one in which the deductor received it.

The Penalty for Late Deduction Payment

Interest is due if the TDS deductor forgets to deduct TDS when sending a payment. From the day the TDS was deductible until the date of actual deduction, the deductor must pay interest at a rate of 1% per month or part of a month.

The Exemptions under Section 10(10D)

Based on Section 10(10D), any amount received under the LIC policy, inclusive of the amount of bonus, is exempted, and the section has the following exemptions:

  • Any funds obtained in accordance with section 80DD (3) or 80DDA (3).
  • Any cash received under a keyman insurance policy LIC policy purchased after April 1, 2003, but prior to March 31, 2012, and whose premium exceeds 20% of the sum assured.
  • If a LIC policy is purchased after April 1, 2012, the premium payment is greater than 10% of the sum insured.
  • LIC policies purchased after April 1, 2013, with premiums exceeding 15% of the total insured for people with a handicap or a severe disability as defined by section 80U or for people with conditions covered by section 80DDB.
  • When requesting an exemption under section 10(10D), there is no upper limit as long as the aforementioned requirements are met.
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