Income Tax Query

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%. 


Case Laws/Clarifications:  

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 08.10.1973. 


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.