Section 194D of the Income Tax Act requires tax to be deducted at the source from commission or prize payments made to insurance agents. This rule tries to ensure that taxes are paid on time by removing a percentage of the commission paid to insurance intermediaries at the source.

Insurance plans are the foundation of unforeseen financial expenses. They cushion the blow during difficult times. As a result, every individual should consider purchasing insurance for themselves and their families.

Typically, customers get insurance from an agent or a broker. Section 194D applies TDS (Tax Deducted at Source) to all commissions, payments, and rewards obtained by these agents/brokers. This blog discusses Section 194D of the Income Tax Act and its benefits.

What is Section 194D?

Section 194D of the Income Tax Act addresses the deduction of TDS on insurance commissions. According to this clause, anyone responsible for paying a resident’s income through an insurance commission must deduct taxes at the source. The person deducting tax must pay the deducted amount to the government within the timeframes specified.

This is only required if the total revenue credited or paid throughout the financial year exceeds ₹15,000.

Eligibility for Section 194D

Eligible individuals must have one of the following income categories for TDS deduction:

Income derived from pay, rewards, or commissions.

For requesting or procuring insurance business.

For matters concerning the insurance policy’s continuation, renewal, or revival.

Section 194D is solely applicable to Indian residents who are individuals, Hindu Undivided Families (HUF), businesses, or other taxpayers. Section 195 covers the TDS on insurance commissions paid to non-residents in India.

The two parties eligible under Section 194D are:

Insurance agent: Any inhabitant obtaining a commission or reward for insurance business.

Insurer: The entity (insurance company, etc.) pays a commission to the agent in charge of deducting TDS.

Rate of TDS Deduction Under Section 194D  

The rate of TDS deduction under Section 194D is:

5% if the payee is an individual or HUF receiving a commission.

10% – If the payee is a domestic corporation that receives a commission.

20% – If the payee’s PAN is not provided.

When is the TDS deduction applicable under Section 194D?

At the time of crediting commission income to the payee’s account.

If the commission payment to the payee is made in cash, check, draft, or another method.

When is TDS not deductible under section 194D?

TDS is not deductible under section 194d of the Income Tax Act in the following two situations:

Insurance commissions paid or credited to the payee do not exceed ₹15,000 in a fiscal year.

When the payee provides a self-declaration in Form 15G/15H indicating that their total income is less than the taxable limit, no tax is due.

However, under Section 197A(1B), the assessee cannot file Form 15G if the total of various forms of income, including insurance commissions, exceeds the maximum amount not taxable for the relevant assessment year.

Due Date to Deposit TDS Under Section 194D 

The due date for deducting and depositing TDS on insurance commissions under Section 194D of the Income Tax Act is the 7th of the following month. This means that if TDS is deducted from the insurance commission in March, the required date to submit the deducted TDS amount with the government will be April 7th of the next fiscal year.

Due Date to Issue TDS Certificates

Months	Deadline for Issuing the Certificate
April – June	August 15
July – September	November 15
October – December	February 15
January – March	June 15

Form 13 and 15G

Form 13 allows an individual earning commission to apply to the Assessing Officer for a certificate permitting a lower or no TDS deduction under Section 197. It relieves the applicant of a bigger TDS deduction than is required.

Form 15G, on the other hand, is a self-declaration sent by the payee to the payer indicating that their total income is less than the taxable limit and that no tax is due. Submitting a proper Form 15G exempts the payer from deducting TDS under Section 194D. However, under section 197A (1B), certain conditions must be met, such as the aggregate of incomes, such as commissions, not exceeding the maximum amount not taxable.

Exemptions Under Section 10 (10D)

Any income received under the LIC policy is excluded, including bonus payments. Any funds received under Sections 80DD(3) or 80DDA(3) are exempt. If a LIC policy was obtained before April 1, 2012, and the premium paid is greater than 20% of the total insured, the maturity amount is tax-free. Tax is excluded for insurance purchased after April 1, 2012, if the premium exceeds 10% of the sum guaranteed.

If purchased after April 2013, LIC policies with premiums greater than 15% of the total sum insured are exempt for disabled people as indicated in Sections 80U or 80DDB. As long as the conditions listed above are met, there is no maximum limit to the tax exemption under Section 10(D).

Conclusion

Section 194D of the Income Tax Act addresses the TDS deduction on commissions or awards paid for obtaining insurance business. This rule tries to ensure that taxes are paid on time by removing a percentage of the commission paid to insurance intermediaries at the source. Compliance with Section 194D is critical for both deductors and deductees.