Section 194D of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on payments made as insurance commission or remuneration to resident agents, brokers, or intermediaries for soliciting or procuring insurance business. Below is a detailed breakdown of its provisions:
1. Applicability of Section 194D
- Who Deducts TDS?
- Insurance companies (e.g., LIC, private insurers).
- Any person/entity paying commission for:
- New policies(solicitation/procurement).
- Renewal/revivalof existing policies.
- Who Receives Payment?
- Resident individuals, HUFs, firms, or companies(non-residents fall under Section 195).
- Excludes reinsurance commissions.
2. TDS Rates & Thresholds
| RECIPIENT TYPE | TDS RATE (PAN PROVIDED) | TDS RATE (PAN NOT PROVIDED) |
| Individuals/HUF/Firms | 5% (2% from April 2025) | 20% |
| Domestic Companies | 10% | 20% |
- Threshold: TDS applies if annual commission > ₹15,000(₹20,000 from April 2025).
- No Surcharge/Cess: Only basic rates apply.
3. When is TDS Deducted?
TDS is deducted at the earlier of:
- Credit to payee’s account(even if unpaid).
- Actual payment(cash, cheque, etc.).
4. Exemptions from TDS
- Annual commission ≤ ₹15,000(₹20,000 from FY 2025-26).
- Form 15G/15H: If payee’s total income is below taxable limits.
- Lower/Nil TDS Certificate (Form 13): Issued by the Assessing Officer.
5. Compliance Requirements
- TDS Deposit: By the 7th of the next month(e.g., July TDS by August 7).
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato payee within 15 days of return filing.
6. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Incorrect Filing: Penalty up to ₹1 lakh.
7. Key Changes (Budget 2025)
- Threshold Increased: From ₹15,000 to ₹20,000 (effective April 2025).
- Rate Reduction: For non-company recipients, from 5% to 2%.
Example Calculation
- Commission Paid: ₹25,000 (Individual with PAN).
- TDS (5%): ₹1,250 (₹500 from April 2025).
- Net Payment: ₹23,750.
Key Takeaways
✅ Verify PAN to avoid 20% TDS.
✅ Track Annual Aggregates (₹15K/₹20K threshold).
✅ Submit Form 15G/15H if income is tax-exempt.
✅ File TDS Returns quarterly to avoid penalties.
