Circular No. 540-Income Tax dated 24-7-1989

1771. Instructions for deduction of tax at source from insurance commission, etc. – Rate of tax applicable during the financial year 1989-90

1. Reference is invited to this Department’s Circular No. 514, dated 31-5-1988 wherein the rates at which the deduction of in­come-tax was to be made during the financial year 1988-89 from payment of income by way of insurance commission under section 194D of the Income-tax Act, 1961 were intimated to you. There is no change in the rates of tax for the financial year 1989-90. For the sake of convenience, the rates for deduction of tax at source under section 194D, during the financial year 1989-90 are indi­cated below:

Income-tax

2. The provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident. Howev­er, under the provisions of section 195 of the Income-tax Act, income-tax is required to be deducted from payments (including payment 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 items 1(b)(i )(E) and 1(b)(ii )(D) of Part II of the First Schedule to the Finance Act, 1989] is 30 per cent of the income by way of insurance commission or 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 by a surcharge at the rate of 8 per cent of such income-tax in the case of

     (i)   a resident Indian, and

    (ii)   a domestic company.

4. Further, 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 actual payment or at the time of credit of such income, whichever is earlier, deduct income-tax 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, 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 to tax in the case of the recipient, he may make an application to the concerned Assessing Officer to determine the income chargeable to tax, and upon such determination, the tax shall be deducted accordingly. A non-resident who is entitled to receive any such sum on which income-tax has to be deducted under section 195 may also make an application in the prescribed form to the concerned Assessing Officer 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 so long as the certificate is in force.

6. (a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. SO 937(E), dated 20-10-1988, old rule 31 of the Income-tax Rules, 1962 has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax deducted at source have been issued in Board’s Circular No. 529, dated 13-2-1989 if a person fails to furnish a certificate as required by section 203, he shall, on an order passed by the income-tax authority, under section 272A of the Income-tax Act, pay, by way of penalty, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for every day during which the failure continues.

(b) 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 Assessing Officer under section 272BB pay, by way of penalty, a sum which may extend to Rs. 5,000.

(c) According to the provisions of section 206 of the Income-tax Act, read with rules, 36A and 37 of the Income-tax Rules, 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 provi­sions of Chapter XVII of the Income-tax Act shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 30th June following the financial year to the designated income-tax authority the Annual Return of deduction of tax under section 194D from “Insurance commission” in Form No. 26D prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS certificate issued to the assessees should be enclosed with the annual return. The person making the deduction of tax from such payments to a non-resident is required to send a statement in Form No. 27 to the designated Assessing Officer within 14 days of the date of deduction.

If a person fails to furnish in due time the annual return, he shall, on an order passed by the income-tax authority, pay, by way of penalty a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for every day during which the failure continues.

(d) According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 194D or section 195 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, 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.

7. 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 Assessing 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. 540, dated 24-7-1989.

ANNEXURE I

EXTRACT FROM THE FINANCE ACT, 1989 PART III OF THE
FIRST SCHEDULE

Paragraph A

Sub-Paragraph I

In the case of every individual or Hindu undivided family or unregistered firm 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 eight per cent of such income-tax:

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