Section 194D of the Income-tax Act mandates tax deduction on commissions or remuneration paid to residents for soliciting or procuring insurance business when the amount exceeds Rs. 15,000 in a financial year. The Finance Bill, 2025 proposes an increase in this threshold, raising the limit for tax deduction at source from Rs. 15,000 to Rs. 20,000. This means that tax will only be deducted on insurance commissions exceeding Rs. 20,000 in a year. This amendment will be effective from April 1, 2025, and applies to commission payments made from that date onward.
Budget 2025: Section 194D – Insurance commission
Section 194D of the Act requires that 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, deduct income-tax thereon at the rates in force, provided that the amount of such payment exceeds Rs. 15,000/- in a financial year.
2. It is proposed to increase this threshold amount for requirement of deduction of tax at source under this section from Rs. 15,000/- to Rs. 20,000/-.
3. This amendment will take effect from the 1st day of April 2025.
[Clause 56]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 56 of the Bill seeks to amend section 194D of the Income-tax Act relating to Insurance commission.
The said section, inter alia, provides that 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 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.
The second proviso to this section provides that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees.
It is proposed to amend the second proviso of the said section so as to provide the threshold of aggregated amounts of such income for requirement to deduct tax at source under this section is twenty thousand rupees.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
56. Amendment of section 194D.
In section 194D of the Income-tax Act, in the second proviso, for the words “fifteen thousand rupees”, the words “twenty thousand rupees” shall be substituted.
