TDS on insurance commission – Section 194D

In addition to other applicable TDS provisions, Insurance companies are compulsory required to deduct tax from following payments;

  • commission paid to the agents; and
  • maturity proceedings paid to the policyholders.

In this article, we will be discussing the TDS provisions for deduction of tax from insurance commission under section 194D.

TDS provisions for insurance payouts at the time of maturity or at the time of surrender has been discussed in our earlier article. TDS amount from these payouts are to be deducted under Section 194DA.

As per section 194D, insurance companies are required to deduct tax on payment of commission to a resident for soliciting and procuring insurance business or from any sum or consideration for soliciting or procuring business related to continuance, renewal or revival of policies of insurance.

If commission is paid to a non-resident, then it will be covered under section 195.

If payee is a domestic company, tax on insurance commission has to be deducted at the rate of 10% at the time of credit or payment whichever is earlier.

In case of payee who is a resident person other than a company, the rate of TDS on commission paid is 5%.

If credit to the account has been made subsequent to a debit, the deduction will have to be made from the full amount credited even though commission amount paid is less.

Surcharge, education cess or SHEC shall not be added to the rate of TDS. This means TDS amount should be calculated at the rate of 5% or 10% as the case may be.

If the deductee has not quoted permanent account number or PAN to the payee, then tax has to be deducted at the rate of 20%.

When tax shouldn’t be deducted from insurance commission

TDS amount as discussed above is not required to be deducted if insurance commission paid during the financial year does not exceed Rs. 15,000. Up to 31.05.2016, this limit was Rs. 20,000.

A person other than a company or firm may furnish a declaration in writing in form number 15G to the insurance company to the effect that his total income is not taxable. Based on the declaration in form no. 15G, the company should not deduct tax at source. Similarly, a senior citizen can furnish the declaration in form number 15H.

Declaration in form number 15G or 15H shall not be valid if it doesn’t have a permanent account number in it. If the declaration is not valid then tax deduction rate will be 20%.

If the person to whom commission is payable thinks that tax shall not be deducted or to be deducted at a lower rate than the rates specified in section 194D, then he shall make an application to the Assessing Officer in Form number 13 to issue a certificate to the payee.

If the certificate is issued authorizing the payee not to deduct tax or deduct tax at a lower rate, then payee on the basis of such certificate shall release insurance commission accordingly.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.