Circular No. 514-Income Tax dated 31-5-1988

1772. Instructions for deduction of tax at source from insurance commission, etc. – Rate of tax applicable during the financial year 1988-89

1. I am directed to invite a reference to this Department’s Circular No. 488, dated 16-6-1987, wherein the rates at which the deduction of income-tax was to be made during the financial year 1987-88 from payment of income by way of insurance commission under section 194D of the Income-tax Act, 1961 were intimated to you. Reference is also invited to this Department’s Circular No. 508, dated 23-2-1988, wherein the fact of levy of surcharge was intimated to you. There is no change in the rate of tax for the financial year 1988-89. For the sake of convenience, the rates for deduction of tax at source under section 194D during the financial year 1988-89 are indicated below:

2. Though the provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident, yet under the provisions of section 195 of the Income-tax Act, in­come-tax is required to be deducted from payments (including payment of income by way of insurance commission) made to a non-corporate non-resident or to a foreign company. 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 1(b)(i )(E) of Part II of the First Schedule to the Finance Act, 1988, is in­come-tax at 30 per cent of the income by way of insurance commis­sion or income-tax in respect of the income at the rate prescribed in Sub-Paragraph I of Paragraph A of Part III of the said Sched­ule (extracts given in Annexure I) 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 on insurance com­mission is to be deducted at the rate of 65 per cent.

3. It may be noted that the amount of tax deducted as per the rates given above shall be increased :

     (i)   by a surcharge for the purpose of the Union @ 5 per cent of such income-tax in the case of a resident Indian; and

    (ii)   by a surcharge @ 5 per cent of such income-tax in the case of a domestic company.

4. According to the provisions of section 194D, any person making payment 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 insurance policies) shall, at the time of payment or credit of such income, whichever is earlier, deduct income-tax thereon at the rates in force. Howev­er, no such deduction shall be made under this section in a case where the amount of such income or the aggregate amount of such income during the financial year does not exceed Rs. 5,000.

5. It may be noted that the exemption of Rs. 5,000 mentioned in para 4 above will not be applicable to such payments made to non-residents. In the case of payments to non-residents where any such sum is credited to any account whether called ‘suspense account’ or by any other name in the books of account of the person liable to pay such income to a non-resident, such crediting shall be deemed to be credit of such income to the account of the payee and tax shall be deducted therefrom. In a case where the person responsible for paying any such income to a non-resident considers that the whole of such income would not be income chargeable in the case of the recipient, he may make an application to the concerned ITO to determine the income chargeable to tax, and upon such determination tax shall be deducted therefrom accordingly. Also, any non-resident who is entitled to receive any such sum on which income-tax has to be deducted under section 195, he may make an application in the prescribed form to the concerned ITO for the grant of a certifi­cate authorising him to receive such sum without deduction of tax, and where any such certificate is granted, the persons responsible for paying such sum shall make payment to the non-resident without deduction of tax therefrom so long as the cer­tificate is in force.

6. According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the Tax-deduction Account Number (TAN) in the challans, TDS certificates, periodical returns, etc. Detailed instructions in this regard are available in this Department’s Circular No. 497, dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall, on an order passed by the ITO, pay, by way of penalty, a sum which may extend to Rs. 5,000.

7. In this connection attention is invited to the provisions of section 206 of the Income-tax Act, 1961 which reads as under:

“206. The prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the fore­going provisions of this Chapter shall prepare, within the pre­scribed time after the end of each financial year and deliver or cause to be delivered to the prescribed income-tax authority such returns in such form and verified in such manner and setting forth such particulars as may be prescribed.”

8. According to the provision of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 194D shall pay within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of sec­tion 276B of the Income-tax Act, as substituted by the Direct Tax Laws (Amendment) Act, 1987, according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprison­ment for a term which shall be between 3 months and 7 years and with fine.

9. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deduction of tax at source under these sections. Wherever there is difference of opinion, a reference should always be made to the provisions of the Income-tax Act, 1961, and the relevant Finance Act through which the changes in law are made. In case any assistance is required, the Income-tax Officer concerned or the Local Public Relations Officer of the Income-tax Department may be approached for the same, who will, if necessary, obtain orders of the higher authority in the matter.

Circular: No. 514, dated 31-5-1988.

ANNEXURE

EXTRACT FROM THE FINANCE ACT, 1988
PART II OF THE FIRST SCHEDULE

Paragraph A, Sub-Paragraph I

In the case of every individual or Hindu undivided family or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person re­ferred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other Paragraph of this Part applies—

Rates of income-tax

Surcharge on income-tax

The amount of income-tax computed in accordance with the preced­ing provisions of this Sub-Paragraph shall, in the case of every person having a total income exceeding fifty thousand rupees, be increased by a surcharge for purposes of the Union calculated at the rate of five per cent of such income-tax:

Provided that no such surcharge shall be payable by a non-resident.