1) Who is responsible to deduct tax u/s 194D?
The tax must be deducted by the entity that makes the payment to the resident person, as remuneration/rewards, by the way of commission or for the following purposes:
– Soliciting or obtaining insurance business
– Continuance, renewal or revival of policies of insurance.
2) When to Deduct TDS under Section 194D?
The tax on insurance commission under Section 194D is to be deducted at the earlier of following events:
– At the time of credit of commission in the account of the payee, or
– The payment in cash or cheque or in kind.
3) Rate of TDS under Section 194D
– TDS u/s 194 D on Insurance Commission made to a resident whether they are individual, company or any other category of persons is deducted at the rate of 5%. (3.75% w.e.f. 14.05.2020 to 31.03.2021)
– Surcharge or H&E Cess will not be added to these rates. Therefore, the tax will be deducted at source at the basic rates mentioned above.
– The rate of TDS will be 20% in cases where the deductee has not quoted PAN.
4) When is TDS not liable to be deducted under 194D?
There are 2 instances when TDS is not deducted under Section 194D:
1. Commission paid does not exceed Rs. 15,000
2. Self-declaration under Form 15G/15H
5) Non-deduction or lowered rate of tax deduction
An individual who receives a commission can make an application in Form 13 to the Assessing Officer for a certificate authorizing the payer not to deduct tax or to deduct tax at a lower rate.
In accordance with section 206AA(4), no certificate under Section 197 for non-deduction or lowered rate of deduction will not be given unless the application also provides the PAN of the applicant.
6) Reinsurance not covered by section 194D
Reinsurance differs from insurance in a number of ways and the most important is that there is no contractual relationship between the Direct Insured and the Reinsurer.
There are separate contracts involved—one between the Insured and the Insurer and another between the Insurer and the Reinsurer. Insurer has to pay all valid claims to the insured, irrespective of whether the insurer can recover the same from his reinsurer.
When an Reinsurance company gets business from insurance company at premium less “Commission”, the “Commission” is not subject to TDS under section 194D, as it is not payable to an agent for procuring insurance business.
Similarly, when “Profit Commission” is payable by an Reinsurance Company to an insurance company, after the expiry of the term of insurance, in respect of such cases where there is no claim during the operation of the reinsurance treaty, TDS under section 194D is not required.
Extract of Section 194D of Income Tax Act, 1961
194D. 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, 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 :
Provided that no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973:
Provided further 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.