Budget 2024 proposes a reduction in Tax Deducted at Source (TDS) rates for insurance-related payments under sections 194D and 194DA of the Income Tax Act. Currently, section 194D mandates a 5% TDS on commissions or rewards for soliciting insurance business. The budget proposes reducing this rate to 2%, effective April 1, 2025. Similarly, section 194DA requires a 5% TDS on sums received from life insurance policies, including bonuses. This rate will also be reduced to 2%, effective October 1, 2024. These changes, outlined in Clause 54 of the Finance Bill 2024, aim to lessen the tax burden on insurance-related payments and provide relief to taxpayers in these categories.
Budget 2024: Section 194D – Payment of insurance commission
1. As per provisions of section 194D, any person responsible for paying to a resident 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 the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force which is at present 5% (in case of person other than company).
2. It is proposed that TDS under section 194D of the Act (in case of person other than company) be reduced from 5% to 2%.
3. The amendment will take effect from 1st day of April 2025.
Budget 2024: Section 194DA – Payment in respect of life insurance policy
As per provisions of section 194DA, any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of 5% on the amount of income comprised therein.
2. It is proposed that TDS under section 194DA of the Act be reduced from 5% to 2%.
3. The amendment will take effect from 1st day of October 2024.
[Clause 54]
Extract of Clause 54 of Finance Bill 2024
Clause 54 of the Bill seeks to amend section 194DA of the Income-tax Act relating to payment in respect of life insurance policy.
The said section provides that any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of five per cent. on the amount of income comprised therein.
It is proposed to amend the said section so as to reduce the said rate of tax deduction from five per cent. to two per cent.
This amendment will take effect from 1st October, 2024.
Proposed Amendment to Section 194DA of Income-tax Act, 1961 vide Finance Bill, 2024
In section 194DA of the Income-tax Act, for the words “five per cent.”, the words “two per cent.” shall be substituted with effect from the 1st day of October, 2024.
