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2021

TDS on Insurance Commission and Life Insurance – Relevant Sections

TDS on insurance

TDS on Insurance Commission [Section 194D]:

  • As per provisions of section 194D, the person who is responsible for making payment to a resident person on account of commission, remuneration, reward or otherwise for below mentioned purpose :
    • For issuance, renewal, continuance, or revival of an insurance policy; or
    • For Soliciting / Procuring Insurance Policies.
  • Thus, provisions of section 194D applies only to the payment made to a resident person. Payment made to a non-resident person is not covered under section 194D, the same is governed by section 195.

Rate of TDS Deduction:

Where provisions of Section 194D are applicable, TDS shall be deducted by the payer at following rates:

Particulars

Rate of TDS when PAN is furnished

Rate of TDS when PAN is not furnished

Payment to Resident Individual

5%

20%

Domestic Company

10%

20%

 

Note: No surcharge, SHE cess shall be added to the above rates.

Exemptions from TDS Deduction under this Section:

Deduction under this section shall not be done in following cases:

  • The aggregate amount of income credited / paid during the financial year to the payee’s account doesn’t exceed INR 15,000.
  • The payee has furnished self-declaration under Form 15G / Form 15H.

TDS on Payment of Life Insurance Policy [Section 194DA]:

A life insurance policy refers to the contract between an insurance provider and an individual. As per the agreement, the policyholders pay a certain amount as the policy premium while the insurer pays a specific amount to their family on untimely demise of life insured. A Life Insurance Policy is one of the most attractive investment option in India as it provide many benefits such as life cover, interest on amount of premium deposited, policy bonus and tax benefits on premium paid.

Generally, huge amount is received at the time of maturity of an insurance policy. The amount so received is subject to TDS u/s 194DA if the policy is not exempt under section 10(10D).

Liability to Deduct TDS u/s 194DA:

  • The person making payment towards maturity of a life insurance policy including bonus, if any, is liable to deduct TDS on such amount if the payment is made to a resident Indian.

Rate of TDS:

  • TDS shall be deducted at the rate of 1% on the maturity value and bonus of a life insurance policy.

Threshold Limit for TDS Deduction u/s 194DA:

  • Where the amount of such payment (or aggregate amount during the financial year) is less than Rs. 1,00,000 in a Financial Year.

Exemption from TDS Deduction:

Apart from threshold limit of Rs. 1,00,000, there are some other cases as follows:

Amount of Premium as percentage of actual capital sum assured

Date of Issue of Policy

Not exceeding 20% of the actual capital cost sum assured.

On or after 1st April 2003 and on or before 31st March 2012

Not exceeding 10% of the actual capital sum assured.

On or after 1st April 2012

Not exceeding 15% of the actual capital sum assured.

On or after 1st April 2013 (and person suffers from disability as per Section 80U & 80DDB).

Time of Deduction of TDS:

  • The Deductor who is liable to deduct TDS under provisions of this section is required to deduct TDS within earlier of the following dates:
    • At the time of credit of income to the account of the payee; or
    • At the time of payment in cash, cheque, draft, or by any other mode.

Time Limit to deposit TDS:

  • TDS deducted is required to be deposited to the credit of the Government within given below timeline to avoid interest:

 

Month of Deduction

Due date of deposit of TDS

During any month from April to February

7th of Subsequent Month

During the month of March

30th April

TDS Return Filing Due Date:

Quarter

TDS Return Filing Due Date

Q1: April to June

31st July

Q2: July to September

31st October

Q3: October to December

31st January

Q4: January to March

31st May

Due Date of Issuance of TDS Certificate:

Quarter

TDS Return Filing Due Date

Q1: April to June

15th  August

Q2: July to September

15th  November

Q3: October to December

15th February

Q4: January to March

15th June

Interest on Late Filing:

Section

Nature of Default

Interest Payable

Period for which interest is to be paid

201A

Non deduction of tax at source, either in whole or in part

1% per month or part thereof

From the date on which tax deductible to the date on which tax is actually deducted.

After deduction of tax, Non-payment of tax either in whole or in part

1.5% per month or part thereof

From the date of deduction to the date of payment.

 

Notes:

  • The above interest should be paid before filing of TDS return. The deductor can make the payment of interest on such late payment of TDS before filing TDS returns or demand raised by TRACES.
  • The interest paid u/s 201A is not allowed as an expense under the Income Tax provisions.
  • Interest to be calculated on a monthly basis and not on the number of days i.e. part of a month is considered as a full month.

Penalty for late filing of TDS Returns:

Section 234E:

    • The deductor will be liable to pay by way of fees Rs.200 per day till the failure to pay TDS continues.
    • However, the penalty should not exceed the amount of TDS for which the statement was required to be filed.


Section 271H:

    • Also, a penalty from Rs.10,000 to Rs.1 lakh is leviable under Section 271H if a company provides incorrect information or fails to submit the returns within the specified due date.
    • This penalty will be charged in addition to the penalty under Section 234E.
    • No penalty under Section 271H will be charged in case of delay in filing the TDS/TCS return if the following conditions are satisfied:
  1. The tax deducted/collected at source is paid to the credit of the government.
  2. Late filing fees and interest (if any) is paid to the credit of the government.
  3. The TDS/TCS return is filed before the expiry of a period of one year from the due date specified in this behalf.

 

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Financial Management