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TDS on Insurance Commission????

Prabeer (B. COM (H) CA & CS Final) (5484 Points)

27 November 2008

Under which Section, at what rate and beyond which threshold limit TDS will be deducted from Insurance Commission paid to any resident individual??????

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CA CS Akashdeep Singh (Practicing CA) (1394 Points)
Replied 27 November 2008

Section 194D l Insurance Commission

1130. Scope of provision of the section requiring deduction of tax at source from insurance commission explained

1. The Finance Act, 1973 has introduced a new section 194D with a view to providing for deduction of income-tax at source, at such rates as may be prescribed in the Finance Act of the relevant year, from payments of income by way of insurance commission. For this purpose, “insurance commission” will mean 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 continuance, renewal or revival of policies of insurance). This provision will apply only in the case of a resident individual. The broad effect of the provisions of the new section will be that any person responsible for paying any such income to a resident individual¹ will be required to deduct income-tax at the prescribed rates. The rate for deduction of tax at source for the financial year 1973-74 which has been prescribed in Part II of the First Schedule to the Finance Act, 1973 is as below :

	Rate of Income-tax	Rate of surcharge
On income by way of insurance commission	10 per cent	Nil.

Although a specific provision has not been made for deduction of tax at source from insurance commission paid to an individual who is not resident in India, tax from such payments made to non-resident will have to be deducted under section 195. The rate for deduction of tax at source in the case of a non-resident individual has been specified in item 1(b)(i) of Part II of the First Schedule to the Finance Act, 1973, at 34.5 per cent (income-tax 30 per cent plus surcharge 4.5 per cent) of the income-tax by way of insurance commission or income-tax and surcharge thereon at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule, if such income had been the total income of the recipient, whichever is higher.

2. The substance of the main provisions in the law insofar as they relate to deduction of income-tax at source from insurance commission is given hereunder :

(1) No tax will be deducted at source where the amount is credited or paid before June 1, 1973.

(2) The deduction will be made at the time of the credit of the income to the account of, or the payment thereof (by whatever mode) to the payee whichever is earlier.

(3) Income-tax will be deductible from the amounts credited or paid after May 31, 1973, even if the relevant amounts accrued before that date.

3. The relevant forms etc., in relation to the provisions for deduction of income-tax at source under section 194D are being prescribed by rules. In the meanwhile, the following instructions may please be noted :

(1) It will be open to the recipient of the commission to make an application to the Income-tax Officer concerned and obtain from him a certificate authorising the payer to deduct tax at such lower rate or deduct no tax, as may be appropriate to his case; such certificate will be valid for the period specified therein unless it is cancelled by the Income-tax Officer earlier.

(2) In view of the existing provision in section 288B the amount of tax to be deducted at source should be rounded off to the nearest rupee by ignoring amounts less than fifty paise and increasing the amounts of fifty paise or more to one rupee.

(3) The tax deducted should be paid to the credit of the Central Government within one week from the date of such deduction or the date of receipt of the challan by the person making the deduction, as the case may be. Challans for paying tax into the Government account are obtainable from the Income-tax Officer concerned.

(4) The person responsible for making the payment should issue a certificate showing therein the amount paid, the amount of tax deducted at source and the date of payment to the Government account. Necessary form in this regard is being prescribed under the Income-tax Rules [see Form 19D].

Circular : No. 112 [F. No. 275/64/73-ITJ], dated 31-5-1973.

1131. Whether, at the time of deducting tax from insurance commission credited to agent’s account, adjustment for debits made earlier is permissible

1. A doubt has been raised whether at the time of deducting tax from the insurance commission credited to an agent’s account adjustment for the debits made earlier is permissible or not. At the time a proposal is brought by an agent, his account is credited with the appropriate amount of commission. It may happen after some time that a portion of the premium paid earlier is refunded to the insurer. At the time of making the refund of premium the agent’s account is debited by an appropriate amount representing the commission on the premium refunded. On the original credit the insurer is required to deduct tax at the rate of 10 per cent. The doubt is whether at the time when a subsequent credit is made and the tax is to be deducted from such credit, an adjustment for intervening debits is permissible so that deduction at the rate of 10 per cent is made only on the amount credited as reduced by the debit made to that account.

2. The Board are of the view that in such cases adjustment for intervening debits is not permissible. Under section 194D, the person responsible for paying insurance commission to a resident is required to deduct tax at the time of credit of such insurance commission to the account of the payee or at the time of payment thereof, whichever is earlier. A plain reading of this section would suggest that the deduction of income-tax is to be made from the amount credited or paid. If the credit to the account is made subsequent to making of the debits, the deductions will have to be made from the full amount credited.

Circular : No. 120 [F. No. 275/107/73-ITJ], dated 8-10-1973.

Instructions regarding deduction of tax at source
from insurance commission

Financial year 1993-94

1132. Instructions for deduction of tax at source from insurance commission, etc. - Rate of tax during the financial year 1993-94