TDS on insurance commission

If you are an insurance broker, you may have a question about the TDS implications on insurance commission. This article will aim to clear your doubts with clear and concise examples and illustrations.

Section 194D of the Indian I.T. Act

Section 194D of the Indian I.T. Act deals with rules and regulations about insurance commissions.
Under section 194D of the Indian Income Tax Act, an insurance company must cut 5% of the commission paid to an insurance agent at source, provided that the commission amount is more than Rs.2.50 Lakhs/year.

Example

Let us say Mr. Arun is an insurance agent with HDFC Life. Mr.Arun earned a cumulative commission of Rs.3 Lakh in F.Y. 20. Under section 194D of the I.T. Act, HDFC Life will have to deduct 5% of Rs.3 Lakh at source as TDS and then release the remaining amount to Mr.Arun. Mr.Arun can later file for a rebate with the income tax department if he so chooses.

Additional Points

There are a few other additional points that an insurance agent should be mindful about, they are:
• If an insurance agent does not provide a PAN card to the insurance company, TDS will be cut at a 20% rate.
• If an insurance company does not cut TDS at source (if the agent’s yearly income is over Rs.2.5 Lakh), it is liable to face a fine.
• If TDS is paid to a domestic company, it will be applied at 10%. For Individuals, it will be 5%.

We trust that we have cleared any lingering doubts and questions that an existing or budding insurance agent may have concerning TDS on your commissions.