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July 20, 2020

Know all about TDS on Insurance Commission as per section 194D

by Mahesh Mara in Income Tax

Know all about TDS on Insurance Commission as per section 194D

Tax deduction at source is a means of collecting tax on income, dividends or asset sales, by requiring the payer to deduct tax due before paying the balance to the payee. In India, under the Indian Income Tax Act of 1961, income tax must be deducted at source as per the provisions of the Income Tax Act, 1961. In this article we will discuss Tax deducted at source on insurance commission. Section 194D deals with the scheme of deduction of tax at source from insurance commission.

When does section 194D TDS on insurance commission applies?

Section 194D casts responsibility on any person responsible for paying to a resident any income by way of remuneration or reward, either by way of commission or otherwise, for soliciting or procuring insurance business (including the business relating to  the continuance, renewal or revival of policies of insurance) to deduct tax at source.

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What are the manner and rate of deduction of TDS under section 194D?

A. Manner of deduction of TDS:

The deduction is to be made at the time of the credit of the income to the account of the payee or at the time of making the payment (by whatever mode) to the payee, whichever is earlier.

The tax under this section has to be deducted at source only if the amount of such income or the aggregate of the amounts of such income credited or paid during the financial year to the account of the payee exceeds Rs. 15,000

B. Rate of TDS

In case the insurance commission is paid before 14th May 2020 than TDS under section 194D is to be deducted at the rate of 5%. Where, insurance commission is paid after 14th May 2020 than TDS under section 194D is to be deducted at the rate of 3.75%. The reduced rate is applicable only for the period from 14th May 2020 to 31st March 2021.

For more information on Change in TDS rates for FY 2020-21 Click here

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Understanding with examples:

Mr. X work with ABC insurance Pvt Ltd, on 20/06/2020 ABC Insurance pvt ltd has paid Commission of Rs. 60,000 to Mr. X.

As per section 194D, a person is required to deduct TDS at the rate of 3.75% in case of payment of commission of more than Rs. 15,000 and such amount must be paid after 14th May 2020. In this case ABC Insurance Pvt Ltd has to deduct TDS of Rs. 2,250 (60,000 * 3.75%) from the payment made to Mr. X.

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