TDS on Insurance Commission
Introduction
Tax must be deducted on payments made as insurance commission to residents under Section 194D of the Income-tax Act. The applicable TDS rate is 5% for individuals, firms, etc. and 10% for domestic companies.
Applicability
TDS applies to any person (individual, firm, company, etc.) making payments for soliciting, procuring, continuing, renewing, or reviving insurance policies. If the payment is made to a non-resident, TDS is deducted under Section 195.
Rate of TDS
- Resident individuals & firms: 5%
- Domestic companies: 10%
- No surcharge or cess is applicable.
Time of Deduction
TDS must be deducted at the time of credit or payment of the insurance commission, whichever is earlier, even if credited to a suspense account.
Threshold Limit
No TDS is required if the total insurance commission paid during a financial year does not exceed Rs. 20,000.
TDS Calculation
TDS is deducted on the gross commission credited before adjusting for any previous excess payments, as clarified by CBDT Circular No. 277, dated 21-07-1980.
Exemptions from TDS
- IFSC Insurance Intermediary Offices– No TDS is required on payments to specified IFSC units, subject to conditions in Notification No. 28/2024, dated 07-03-2024.
- Government & Certain Entities– No TDS applies on payments to the government, RBI, mutual funds, or tax-exempt statutory corporations (Section 196).
Compliance Requirements
- Lower/Nil Deduction Certificate:Deductees may apply for nil or lower TDS certificates under Sections 197 & 197A.
- TDS Deposit:Deducted tax must be deposited via Challan ITNS 281 within 7 days of the end of the month (except for March, where the due date is 30th April). Government offices depositing TDS without a challan must deposit the TDS on the same day on which the tax was deducted.
- TDS Returns:The deductor must file Form 26Q quarterly.
- TDS Certificate:Form 16A must be issued within 15 days of filing TDS returns.
Consequences of Non-Compliance
- Failure to deduct/deposit TDS– Interest under Section 201, penalty under Section 271C (up to the TDS amount), and prosecution under Section 276B.
- Failure to file TDS returns– Late fee of Rs. 200 per day under Section 234E and penalty under Section 271H.
- Failure to issue TDS certificates– Penalty under Section 272A.