1124. Whether, at the time of deducting tax from insurance commission credited to agent’s account, adjustment for debits made earlier is permissible

1. A doubt has been raised whether at the time of deducting tax from the insurance commission credited to an agent’s account adjustment for the debits made earlier is permissible or not. At the time a proposal is brought by an agent, his account is credited with the appropriate amount of commission. It may happen after some time that a portion of the premium paid earlier is refunded to the insurer. At the time of making the refund of premium the agent’s account is debited by an appropriate amount representing the commission on the premium refunded. On the original credit the insurer is required to deduct tax at the rate of 10 per cent. The doubt is whether at the time when a subsequent credit is made and the tax is to be deducted from such credit, an adjustment for intervening debits is permissible so that deduction at the rate of 10 per cent is made only on the amount credited as reduced by the debit made to that account.

2. The Board are of the view that in such cases adjustment for intervening debits is not permissible. Under section 194D, the person responsible for paying insurance commission to a resident is required to deduct tax at the time of credit of such insurance commission to the account of the payee or at the time of payment thereof, whichever is earlier. A plain reading of this section would suggest that the deduction of income-tax is to be made from the amount credited or paid. If the credit to the account is made subsequent to making of the debits, the deductions will have to be made from the full amount credited.

Circular : No. 120 [F. No. 275/107/73-ITJ], dated 8-10-1973.

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October 2020