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written by Khatabook | November 23, 2021

Know About Section 194D and 194DA of the Income Tax Act 1961

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Section 194D deals with Tax Deduction at Source (TDS) against Income earned by Insurance Commission by the persons acting as Insurance Agents for soliciting or procuring insurance business. Whereas Section 194DA deals with Tax Deduction at Source (TDS) for payment made to an Indian resident upon the maturity of life insurance policy, including bonus. This article provides you with in-depth knowledge regarding 194D and 194DA of Income Tax Act 1961.

Section 194D of Income Tax Act - Insurance commission

The section reads as under:

“Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:

Provided that no deduction shall be made under this section from any such income credited or paid before the 1st day of June 1973:

Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees.”

Important Information Regarding 194D of income tax act 1961 

Section 194D is about Tax Deduction at Source (TDS) against any income earned by a person resident in India in the form of Insurance Commission. 

1. Type of Income

Income under Section 194D caters to remuneration or reward, whether by way of commission or otherwise for soliciting or procuring insurance business (including business relating to the continuance, renewal, or revival of insurance policies), i.e. income earned by a person acting as Insurance Agent.

2. Who is responsible for the deduction of tax at source (TDS)?

Any person who pays the commission for procuring insurance business, i.e. persons or firms or companies involved in the Insurance business in India like LIC of India, New India Assurance Co. Ltd., National Insurance Company Ltd., United India Insurance Co. Ltd., Oriental Insurance Co. Ltd., Tata AIG General Insurance Co. Ltd., HDFC Ergo, ICICI Lombard, Kotak Life, MAX Health-life, etc.

3. Time of deduction of tax at source (TDS)

The tax shall be deducted when making payment or credit of such income to the account of the payee (Agent), whichever is earlier. The payment can be in cash, by cheque, draft, or any other mode like National Electronic Funds Transfer (NEFT)/Real Time Gross Settlement (RTGS)/Electronic Transfer/any different mode.  

4. Rates of TDS

  • 5% of the amount of commission paid or credited to the account of resident persons other than domestic companies (Individuals/Firms etc.)
  • 10% of the amount of commission paid or credited to the account of domestic companies 
  • 20% of the amount of commission paid or credited to the account of the payee if no PAN.

5. No deduction of tax at source (TDS) in certain cases

No deduction of tax at source shall be made under this section in a case where:- 

  1. The amount of commission paid or credited or likely to be paid or likely to be credited or aggregate of both does not exceed Rs. 15,000/- in a financial year.
  2. When a person provides a self-declaration in Form 15-G* or 15-H**.
  3. No tax deduction at source shall be made under this section from any such income credited or paid before the 1st day of June 1973.
  4. Any person who receives income by way of commission can apply in Form 13 to the Assessing Officer for a certificate authorising the payer not to deduct any tax or to deduct tax at a lower rate. But no certificate under Section 197 for non-deduction or a lower rate of deduction will be given unless the application also provides the PAN of the applicant as provided in section 206AA(4).

*Form 15-G [Declaration under section 197A(1)  and section 197A(1A) to be made by an individual below the age of 60 years or by a person (not being a company or firm) claiming certain incomes without deduction of tax]

**Form 15-H [Declaration under section 197A(1C) to be made by an individual who is of the age of sixty years or more claiming certain incomes without deduction of tax]

The declaration in Form 15-G or 15-H shall contain the tax on their estimated total income. It includes this income, and the aggregate amount of income during the year shall be nil and further, that aggregate amount of income will not exceed the maximum amount, which is not chargeable to tax during the year.

Also Read: Section 119 of Income Tax Act

Section 194DA of Income Tax Act - Payment in respect of life insurance policy 

The section reads as under:

“Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of [5% on the amount of income comprised therein] :

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees.”

Important Information Regarding 194DA of income tax act 1961 

Section 194DA is about Tax Deduction at Source (TDS) on paying any sum under a life insurance policy. The details are as under:-

1. Type of Payment

Payment under Section 194DA is garnered from a life insurance policy, including the sum allocated as a bonus on such policy, i.e. maturity proceeds or otherwise any sum payable under such policy. 

2. Who is to deduct tax at source (TDS)?

Any person who pays the amount under the life insurance policy, i.e. companies or firms doing the business of life insurance in India, i.e. LIC of India, Max Life, Kotak Life, ICICI Lombard, etc.

3. Time of deduction of tax at source (TDS)

The tax shall be deducted when making payment or credit of such sum to the payee's account (Policy Holder), whichever is earlier. The payment can be in cash or by cheque or draft or any other mode like NEFT/RTGS/Electronic Transfer/any other mode.  

4. Rates of TDS

5% of the amount paid or credited to the account of the policyholder. Earlier it was 1% before 01/09/2019.

5. No deduction of tax at source (TDS)

(i) When the total amount paid or credited does not exceed Rs. 1,00,000/- (Rupees One Hundred Thousand)

(ii) When a person provides a self-declaration in Form 15G* or15H** 

(iii) If the maturity proceeds are exempt u/s 10(10D).

Section 10(10D) reads as under:

“Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—

(a)  any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or

(b)  any sum received under a Keyman insurance policy; or

(c)  any sum received under an insurance policy issued on or after the 1st day of April 2003 but on or before the 31st day of March 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured; or

(d)  any sum received under an insurance policy issued on or after the 1st day of April 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds 10% of the actual capital sum assured:

Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person:

Provided further that to calculate the actual capital sum assured under sub-clause (c), effect shall be given to the Explanation to sub-section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be :

Provided also that where the policy, issued on or after the 1st day of April 2013, is for insurance on the life of any person, who is—

 (i)  a person with a disability or a person with severe disability as referred to in section 80U; or

(ii)  suffering from disease or ailment as specified in the rules made under Section 80DDB,

the provisions of this sub-clause shall have effect as if for the words "10%", the words "15%" had been substituted.

Explanation 1— For this clause, "Keyman insurance policy" means a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person and included such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration;

Explanation 2— For sub-clause (d), the expression "actual capital sum assured," shall have the meaning assigned to it in the Explanation to sub-section (3A) of section 80C.”

*Form 15-G [Declaration under section 197A(1)  and section 197A(1A) to be made by an individual below the age of 60 years or by a person (not being a company or firm) claiming certain incomes without deduction of tax]

**Form 15-H [Declaration under section 197A(1C) to be made by an individual who is of the age of sixty years or more claiming certain incomes without deduction of tax]

The declaration in Form 15-G or 15-H shall contain that the tax on their estimated total income including this income and the aggregate amount of income during the year shall be nil and further that aggregate amount of income will not exceed the maximum amount which is not chargeable to tax during the year.

Example of Section 194DA

The amount received by any Individual under the life insurance policy is subject to tax deduction at source (TDS)  @ 5% of the sum received, which can become more clear by the following example:-

If Mr A takes a policy from LIC of India:

For a sum assured of

 Rs. 1,00,000/-

For a period of

10 years

Pays a premium for 10 years

Rs. 25,000/- per annum 

He is entitled to receive the total maturity proceeds of

Rs. 3,50,000/-

  • It includes a bonus declared by the LIC of India at the end of 10 years (say on 1st May 2021), then TDS will be applicable as he has paid a premium of Rs. 25,000/- every year, i.e. more than 10% of sum assured Rs. 1,00,000/-. 
  • Thus, he will have to pay TDS @ 5% on Rs. 1,00,000/- (maturity proceeds of Rs. 3,50,000/- less premium paid in 10 years + Rs. 2,50,000/-) = Rs. 5,000/- and he shall receive the net maturity amount of Rs. 3,45,000/- only.

Also Read: Section 115BAA – New tax rate for domestic companies

Conclusion

Section 194D deals with Tax Deduction at Source (TDS) against Income earned by Insurance Commission by the persons acting as Insurance Agents for soliciting or procuring insurance business. Whereas Section 194DA deals with Tax Deduction at Source (TDS) for payment made to a Resident Indian upon the maturity of life insurance policy, including bonus. We hope the article has given you the required information regarding Section 194D and 194DA, TDS rate, persons required to deduct TDS, and the type of payment. 

Download the Khatabook app to get regular updates about the latest Sections of TDS.

FAQs

Q: Can a refund of TDS deducted under Section 194DA be claimed?

Ans:

Yes, the refund can be claimed by filing the Return of Income.

Q: What will be the rate of TDS under Section 194DA if PAN is not submitted?

Ans:

The rate of TDS under Section 194DA is 20% if PAN is not submitted.

Q: Is there any relief in TDS rates under Section 194DA due to the COVID-19 pandemic?

Ans:

Yes, the TDS rates were 75% of normal rates from 14th May 2020 to 31st March 2021 (i.e. 3.75% for individuals).

Q: What happens if no tax is deducted at the source by the Payor?

Ans:

There will be no action against the payee (Insurance Agent), but the payor or Deductor will have to pay the interest or penalty or both as provided in different sections of the Income Tax Act. 

Q: Is Section 194D applicable to Non-Resident?

Ans:

No, this section applies to Resident Indian only. There is a separate section 195 for TDS against payments made to Non Residents.

Q: Is any relief of TDS permissible if there is the reversal of commission income by the payor due to any reason?

Ans:

No, once the tax has been deducted at the source and deposited into the Govt. A/c, there is no relief if commission income credited earlier is reversed subsequently due to any reason. However, the Insurance Agent can claim the refund/adjust it against his total tax liability when filing his return of Income.

Q: Is there any relief in TDS rates under Section 194D due to the COVID-19 pandemic?

Ans:

Yes, the TDS rates were 75% of normal rates from 14th May 2020 to 31st March 2021 (i.e. 3.75% for individuals/firms, etc., and 7.50% for domestic companies).

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.