TDS on commission

If you are an insurance agent and earn a commission, the same shall be paid to you after deducting a specific portion of the tax, known as TDS. TDS shall be deducted in accordance with section 194D of the Act. Such TDS amount will be reflected in your Form 26AS.

Who will deduct TDS?
An entity shall be required to deduct TDS under section 194D on payment of commission to an Indian resident for the following purposes:
a) For soliciting or procuring insurance business
b) For business by way of renewal, revival, or continuance of policies.

When is TDS not required to be deducted?
An entity shall not deduct TDS if:
- The commission paid does not exceed INR 15,000 or
- When the agent submits a self-declaration under Form 15G/15H that the tax calculated on his total income is Nil, or his total income is less than INR 2,50,000, the basic exemption limit, in case he is less than 60 years of age.

The rate at which TDS is deducted?
If the payment is made to :

A resident person other than a company 5%
Company 10%

Note:
1. The above rates from 14th May 2020 until 31st March 2021 shall be 3.75% and 7.5%, respectively.
2. Surcharge or cess shall not be added to the above rates.
3. If the agent does not quote PAN, then the rate shall be 20%.
4. If the TDS is more than Rs 50,000 in the last two years, but the agent has not filed income tax returns, the rate of TDS shall be two times the specified rate or 5%, whichever is higher.

Calculating the taxable Income for Insurance Agents

The income of the insurance agent is not eligible for the presumptive scheme of taxation, and therefore, he shall be required to pay tax as per normal provisions at slab rates depending on his income bracket. The deduction of expenses incurred by him shall be available if he maintains proper and justifiable records relating to such expenses. Otherwise, an ad hoc deduction shall be available to agents of Life Insurance Corporation (LIC) as explained below. Also, an insurance agent’s income can be computed with the help of the tool made available by the income tax department. (https://www.incometaxindia.gov.in/Pages/tools/Agent-Commission-Calculator.aspx)

Ad hoc deduction for agents of LIC
LIC agents are eligible for an ad hoc deduction from his income if his gross commission income is up to INR 60,000 and he hasn’t maintained detailed accounts of his expenses. The deduction shall be as follows:

i) separate commission amounts for the first-year and renewal commission are available, then a deduction of 50 per cent of first-year commission and 15 per cent of the renewal commission;
(ii) where such separate figures are not available, then one-third of the gross commission.

In the above cases, the deduction will be subject to a ceiling limit of INR 20,000

The actual amount of expenses can be claimed if the agent maintains proper records of such expenses.

E.g. Mr A receives the following commission income from LIC:

  • First-Year commission- INR 30,000
  • Renewal commission- INR 10,000
  • First-year and renewal- INR 15,000

The amount of deduction is

  • First-Year commission - INR 15,000, i.e. 50%
  • Renewal commission - INR 1,500, i.e. 15%
  • First-year and renewal - INR 5,000, i.e. 1/3rd since the separate amounts are not available.
  • Total Deduction - INR 20,500 but shall be restricted to INR 20,000.

Which Income Tax Return(ITR) is to be filed?

The agents are required to file ITR-3 and not ITR-4 as it is applicable to persons eligible for the presumptive scheme of taxation. Insurance agents do not qualify for the said scheme of taxation. The ITR-3 may require you to furnish the following details:

  • General information about you and the business details
  • Computation of Income as per the Act
  • Balance sheet as at the year-end
  • Profit or loss statement for the relevant financial year

The process of return filing is complete only after verification of the same either by e-verifying through aadhaar OTP, and electronic verification code(EVC) via net banking/bank account/demat account/ ATM or by sending a physical copy of the signed ITR-V to CPC, Bangalore

What are the two available options in the Income Tax E-Filing Vault facility?

  • As previously stated, you can activate Income Tax E-Filing Vault and secure your e-Filing account with dual authentication by using any eligible method (Net Banking, DSC, or Aadhaar OTP).
  • When you forget your e-Filing account password, you can reset it. You must again register for the “Lock Reset Password Options” feature of the Income Tax E-Filing Vault.

You can use the e-Filing vault feature to increase the security of your e-Filing account if you are a server admin of the e-Filing platform.

The user has the option of selecting any of the options listed: Net Banking, Digital Security Certificate (DSC), OTP on the mobile number registered with Aadhaar, Bank Account EVC, Demat Account EVC

Before opting, one must remember the given access and ensure that one has linked that medium to his/her/their respective account. In the case of Bank Transfer, the registered user is required to fill into his/her/their e-Filing account setup again via his Net Banking access.

To log in through DSC, the user must first select the Digital Signature by going to My Profile and then selecting the option of Register Digital Signature Certificate. Before applying for the third option, the account holder must link the Aadhaar with the PAN card.

To log in with Aadhaar OTP, before selecting ‘Log in with Aadhaar OTP,' users must first link their Aadhaar to their PAN. Go to My Profile > link aadhaar to link your Aadhaar.

To login with a Bank Account, before selecting ‘Log in with a Bank Account EVC,' users must first link their bank account to their PAN. Go to My Profile > pre-validate your bank account to link it.

To log in with Demat Account EVC, before selecting ‘Login Using Demat Account EVC,' users must first link their Demat Account to their PAN. Go to My Profile > prevalidate your Demat Account to link your bank account.

There is always a constant war against privacy and data's value will rise over the years, making it even more valuable than it is now. Hence, high-security vaults are indeed the most reliable .