SECTION 194D - TDS ON INSURANCE COMMISSION

TDS U/S 194D: TDS ON INSURANCE COMMISSION

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 194D of Income Tax Act?

Section 194D of Income Tax Act, 1961 mandates that TDS to be deducted by the payer while making payment to resident persons by way of commission for the following purposes: -

• Soliciting or obtaining insurance business.
• Continuance, renewal or revival of policies of insurance.

3. When is TDS to be deducted under Section 194D?

TDS is required to be deducted: -

• At the time of payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

4. Who is required to deducts TDS under Section 194D?

Any person while making above mentioned payments to the resident person during the financial year is required to deduct TDS u/s 194D (provided the income exceeds Rs.15,000).

NOTE: -

This section i.e. TDS on payment of Insurance commission is not applicable while making such payments to non-residents.

Example: -

Q. Mr. Dhanraj is an insurance agent for LIC, during the year his income from insurance commission was Rs. 1,20,000 he filed formed 15G/ 15H with the LIC stating that my income is below exemption limit. At what rate TDS should be deducted in this case?

A. In case of insurance commission the rate of TDS 10% if the income form insurance exceeds Rs. 10,000 but in this since the payee has submitted form 15G/ 15H to the payer no TDS liability arises in hand of the payer, so no TDS is required to be deducted.    

5. Rate of TDS under Section 194D?

The TDS rate under this Section is: -

NOTE: -

It is to be noted that effective 1^st April 2025 the TDS rates for payment of insurance commission to residents other than company will reduced to 2% from 5%.

6. Exemption under Section 194D?

No TDS if: -

• The commission paid does not exceeds Rs. 15,000.
• Self-declaration provided under form 15G/ 15H.

7. Time limit for deposit of TDS under Section 194D?

The due date for deposit of TDS is as below: -

8. What is the due date for filing of TDS return under Section 194D?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: -

9. Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10. Fees/ Penalties for Late/ Non- Filing of TDS u/s 194D?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.

FREQUENTLY ASKED QUESTIONS?

Q. What is the threshold limit for TDS under 194D?

A. The threshold limit for TDS under 194D is Rs. 15,000.

Q. Whether TDS is required to be deducted under 194D if insurance commission is paid to non-resident?

A. NO, this section only covers payment of insurance commission made to resident persons only. So, TDS u/s 194D is not deductible when making payment if insurance commission to non-resident persons.

Q. Is TDS deductible under section 194D for reinsurance commission?

A. NO, under section 194D TDS is not deductible for reinsurance commission.

Q. At what amount TDS is to be deducted gross or net?

A. TDS should be deducted at the net amount after deducting all taxes like GST.

Q. What is the benefit of 2% TDS to Insurance agents?

A. The agents will receive higher payout and will be able to use money throughout the year rather than waiting for a refund.

Q. Is there any way to reduce or avoid TDS under Section 194D?

A. Yes, the payee can submit form 15G/ 15H to the payer or apply for a lower deduction certificate under Section 197 to reduce or avoid TDS.