Circular No. 277-Income Tax dated 21-7-1980

1. I am directed to invite a reference to this Department’s Circular No. 271[F.No. 275/18/10-IT(B)], dated 26-5-1980 [Clarification 2], wherein it was intimated that the deduction of income-tax at the same rates as were applicable during the financial year 1979-80 may continue to be made during the financial year 1980-81 from payments of income by way of insurance commission under section 194D. The Finance (No. 2) Bill, 1980 introduced in the Parliament on June, 1980 proposes, in Part II of the First Schedule the following rates for deduction of tax at source under section 194D during the financial year 1980-81 :

2. Though the provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident, under the provisions of section 195 of the Act, income-tax is required to be deducted from payments (including payments of income by way of insurance commission) made to a non-corporate, non-resident taxpayer as also a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment within India of dividends in the manner prescribed under rule 27 of the Income-tax Rules. In the case of a person other than a company, who is not resident in India, the rate of deduction of tax at source as specified in item 1(b)( i) of Part II of the First Schedule to the Finance (No. 2) Bill, 1980 is 33 per cent (Income-tax at 30 per cent plus surcharge at 3 per cent) of the income 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 said Schedule if such income had been the total income of such person, whichever is higher. In the case of a company which is not a domestic company, tax is to be deducted at the rate of 75.25 per cent (income-tax 70 per cent plus surcharge 5.25 per cent).

3. It is requested that the deduction of tax at source from payments of income by way of insurance commission may be made during the financial year 1980-81 on payments made after June 18, 1980 according to the above rates. If any deduction has already been made according to the rates prescribed in the Finance (No. 2) Act, 1980, no adjustment therefor need be made.

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

(1) For the purposes of deduction of tax at source, “insurance commission” will mean an 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 reviving of policies of insurance).

(2) 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) The tax deducted should be paid to the credit of the Central Government by remitting it into the Government Treasury or the office of the Reserve Bank of India or the State Bank of India or any other authorised public sector bank within one week from the last day of the month in which the deduction is made. In cases where the income by way of insurance commission is credited to the account of the payee as on the date up to which the accounts of the business of the payer are made, the tax deducted therefrom may be paid to the credit of the Central Government within two months of the expiration of the month in which the date, up to which the accounts are made, falls.

(4) Blank challans for making payment of the tax deducted at source can be obtained from the Income-tax Officer. For the convenience of taxpayers new colour band challan forms are being progressively introduced. Each such challan form is also numbered on the top left hand corner. The payment should be made on the appropriate challan, accordingly, as indicated below :

It is very necessary for correct accounting of tax payments in the Income-tax Department that the appropriate challan form is used for making the payment. Where the payment of tax includes any surcharge it should be shown separately in the challan, in the space provided for that purpose.

(5) The amount of tax to be deducted at source should be rounded off to the nearest rupee ignoring amounts less than 50 paise and increasing the amounts of 50 paise or more to one rupee, as required under section 288B.

(6) At the time of deducting tax from the insurance commission credited to an agent’s account, adjustment for any debits made in his account in respect of excess commission credited or paid to him earlier is not permissible and income-tax must be deducted from the full amount of commission credited to his account.

(7) It will be open to the recipient of the commission, other than a company, to make an application in Form No. 13D to the Income-tax Officer concerned and obtain from him a certificate authorising the person responsible for paying the income by way of insurance commission to deduct tax at such rates, or deduct no tax, as may be appropriate to his case. Such a certificate will be valid for the period specified therein unless it is cancelled by the Income-tax Officer earlier.

(8) The person responsible for making the payments should issue a certificate to the payee in Form No. 19D showing therein the amount of income by way of insurance commission credited or paid, the amount of tax deducted at source, and the date of payment to the Government account.

(9) The person making deduction of tax in accordance with the section 194D from income by way of insurance commission should send to the Income-tax Officer having jurisdiction to assess him—

    (a)   A certificate in Form No. 26D quarterly on July 15, October 15, January 15 and April 15, in respect of deduction of tax made by him during the preceding quarter;

    (b)   a statement in Form No. 26E on or before June 30 each year containing details of amounts of insurance commission from which tax has been deducted by him during the immediately preceding financial year; and

    (c)   a statement in Form No. 26F on or before June 30 each year containing details of amount of insurance commission paid or credited during the immediately preceding financial year without deduction of tax.

Circular : No. 277 [ F. No. 275/18/80-IT(B)], dated 21-7-1980.