SECTION 194D – INSURANCE COMMISSION
INSTRUCTIONS FOR DEDUCTION OF TAX AT SOURCE FROM
FINANCIAL YEAR 1993-94
Instructions for deduction of tax at source from insurance commission, etc. – Rate of tax during the financial year 1993-94
1. Reference is invited to the Board’s Circular No. 633, dated the 20th August, 1992 wherein the rates at which the deduction of income-tax at source was to be made during the financial year 1992-93, from payment of income by way of Insurance Commission, under section 194D of the Income-tax Act, 1961, were communicated.
2. According to the provisions of section 194D, any person 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 insurance policies) is required to deduct at the time of actual payment or at the time of credit of such income, whichever is earlier, income-tax at the rates in force. However, no such deduction is required to be made in a case where the amount of such income or the aggregate amount of such income paid or credited during the financial year does not exceed Rs. 5,000.
3. There is no change in the rates for deducting income-tax from Insurance Commission paid during the financial year 1993-94. These rates are as under :
(i) in the case of a non-corporate resident person :
(ii) in the case of domestic company :
4. Further, the amount of income-tax deducted at the aforesaid rates is to be increased by a surcharge at the rate of 12% in the case of a non-corporate resident person and at the rate of 15% in the case of a domestic company.
5. It may be noted that the provisions of section 194D apply in relation to income by way of insurance commission paid to a resident only. However, under the provisions of section 195, income-tax is required to be deducted from payments (including payments by way of insurance commission) made to a non-corporate non-resident assessee, or, to a foreign company, also.
6. There is also a provision in the Income-tax Act, for deduction of tax at source under section 194D at a lower rate, or no deduction in certain cases. For this purpose, a certificate for deduction of tax at lower rate or no deduction can be obtained from the Assessing Officer, under the provisions of sub-section (1) of section 197, so as to enable any person (including a company) to obtain this certificate, in case his total income justifies deduction of tax at a lower or nil rate. For this purpose, an application can be made in Form No. 13, to the Assessing Officer. Where any such certificate is given, the person responsible for paying the insurance commission shall deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.
7. The responsibilities, obligations, etc., under the Income-tax Act, of the person deducting tax at source, are as follows :—
(a) According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 194D shall pay, within the prescribed time (as laid down in rule 30 of the Income-tax Rules, 1962), the sum so deducted to the credit of the Central Government. In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of the deduction itself. In other cases, normally, the same has to be paid within one week from the last day of the month in which the deduction is made. If a person fails to pay the tax to the credit of the Central Government, he shall be liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at the rate of 15 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Further, section 271C lays down that if any person fails to deduct tax at source he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. Besides, section 276B of the Act lays down that 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 not be less than 3 months but which may extend to 7 years, and with fine.
(b) According to the provisions of section 203, every person deducting tax at source is required to furnish a certificate to the effect that the tax has been deducted, and, to specify therein the amount deducted, and, certain other particulars. This certificate, for deduction of tax at source under section 194D, has to be furnished within one month of the close of the financial year to the person to whose account credit is given or to which payment is made by any mode, as the case may be. The certificate should be issued in Form No. 16A (copy at Annexure I) by the tax deductor on his own stationery. If a person fails to issue the certificate prescribed by section 203, he shall be liable to pay by way of penalty, under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for each day during which the failure continues.
(c) 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 obtain and quote the Tax-deduction Account Number (TAN) in this regard, TDS certificates, returns, etc. Detailed instructions in this regard are contained in the Board’s Circular No. 497 [F. No. 275/118/87-IT(B), dated 9-10-1987]. If a person fails to comply with the provisions of section 203A, he shall be liable to pay by way of penalty, under section 272BB, a sum up to Rs. 5,000.
(d) 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 at source under the various provisions of the Income-tax Act, shall prepare and deliver by the prescribed date the Annual Return of deduction of tax at source, to the designated/concerned Assessing Officer. In the case of deduction of tax at source from insurance commission, this return has to be prepared in Form No. 26D and delivered by the 30th June following the financial year to which it relates. It may be noted that a copy of each TDS certificate issued during the financial year should be enclosed with the Annual Return. If a person fails to furnish in due time the Annual Return, he shall be liable to pay, by way of penalty, under section 272A(2) 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. However, the maximum penalty will not exceed the amount of tax deductible at source.
8. These instructions are not exhaustive and are issued only with a view to helping the person responsible for making deduction of tax at source under section 194D. Whenever there is any doubt reference may be made to the relevant provisions of the Income-tax Act, 1961 and the Income-tax Rules, 1962. In case any assistance is required, the Assessing Officer concerned or the Local Public Relations Officer of the Income-tax Department may be contacted.
Circular : No. 656, dated 26-8-1993.