Insurance Commission TDS Rates and Deduction Rules in India

Agents and intermediaries earn commissions in the insurance sector. These commissions are taxable, and tax must be deducted at source (TDS) before payment. It’s important to know how TDS works, as it is crucial for both insurance companies and agents who receive these payments. 

Proper knowledge of the insurance commission TDS rate and TDS rules is crucial for ensuring compliance with the Income Tax Act. It helps with penalties and maintains accurate financial records. With changing regulations, it’s important to stay informed about Section 194D. 

Let’s explore how TDS works on insurance commission under Section 194D

What is Section 194D?

Section 194D of the Income Tax Act deals with TDS on insurance commissions or remuneration paid to agents. It requires insurance companies to deduct tax at source on payments. This includes commissions for soliciting, procuring or renewing insurance policies. This ensures the tax is collected upfront on income earned from insurance commissions. 

Eligibility of Deduction Under Section 194D 

Section 194D says tax must be deducted at source by insurance companies on commission given to agents. This includes activities related to the sale, renewal or revival of the insurance. 

Eligible Recipients Include:

• Corporate Agents or Insurance Intermediaries.
• Brokers or Sub Brokers involved in Insurance Policy Distribution.
• Individual Insurance Agents receiving commission or remuneration. 

TDS under Section 194D must be deducted when an agent's total commission in a financial year goes over Rs 20,000. The previous limit of Rs 15,000 was increased to Rs 20,000 on April 1, 2025, according to the Budget 2025. 

When is TDS Deducted Under Section 194D?

Under Section 194, TDS is applied when the commission is paid or credited to the agent. This ensures that tax is collected on the income early. Deducting on time avoids penalties on both the party's agent and the company. 

Example: 

Suppose an insurance company credits Rs 25,000 as commission to the agent’s account on 1st April 2025. TDS must be deducted on this Rs 25,000 immediately. 

This ensures that the tax liability is recognised at the earliest and reduces the risk of evasion. 

Situations when TDS is deducted:

• Credit to Account: When the commission is credited to the agent’s account
• Payment Made: When the commission is paid in cash or cheque. 

What is the Rate of TDS Under Section 194D?

Under Section 194D, an insurance company must deduct tax at source on commissions paid to agents. The insurance commission TDS rate depends on the type of recipients. Also, whether they’ve submitted their PAN. 

Applicable TDS Rates Under Section 194D

• 5% for Individuals and Hindu Undivided Families
• 10% for domestic companies
• 10% for Non-Resident Agents
• 20% if the recipient does not furnish their PAN

These rates apply to the commission paid or credited for the financial year. As the rates may be revised, it’s best to consult the latest tax provision for accuracy. 

When is TDS Not Liable to be Deducted Under Section 194D?

TDS under Section 194D is not applicable if the commission payment does not meet the specified conditions. Understanding these exemptions helps agents and insurers deduct tax when needed and follow the rules. 

Exemptions Include: 

1. Commission Below Threshold - No TDS is required if the total insurance paid or credited during the financial year is Rs 20,000 or less.
2. Reinsurance Commission - TDS does not apply if the commission is paid between insurance companies for reinsurance business.
3. Lower or nil TDS Certificate - Using Form 13, the payee can request a certificate from the Assessing Officer. This certificate allows a lower or nil TDS on insurance commission.
4. Income below the taxable limit - If the payee submits Form 15G/15H, it confirms their total income is below the taxable limit. 

Non-Deduction or Low Rate of Tax Deduction 

In certain cases, the payee can get non-deduction or a reduced rate of TDS on insurance commission. It’s useful if their income is below the taxable limit or when they’ve a certificate from the Assessing Officer. The request can be submitted by Form 13, 15G and 15H, depending on the type of exemption. 

Let’s understand with an example, 

By following these provisions, TDS on insurance commission is deducted only where needed. This ensures smooth compliance for both agents and insurers. 

What are the Time Limits of the Deduction of TDS for Section 194D?

The time limits ensure that prompt deduction for TDS under Section 194D is made to collect tax on insurance commissions promptly. Deducting TDS at the correct time helps insurance companies to avoid penalties. It also allows agents and intermediaries to claim the TDS credit while filing the taxes. 

Time Limits for TDS Deduction: 

• At the time of Credit - TDS must be deducted when the commission is credited to the payee’s account.
• At the time of Payment - TDS must be deducted when the commission is paid in cash, cheque or any other mode. 

Due Date to Deposit TDS Under Section 194D

The due date to deposit TDS under Section 194D is the 7th of next month. This is for the month TDS was deducted. For example, if the TDS is deducted in April, it must be deposited by 7th May. Exception for March, as it is the last month of the financial year. The TDS must be deposited by April 30 of the next financial year. 

Due Dates for Issuing TDS Certificate 

Insurance companies are required to issue a TDS certificate to the recipients after deducting TDS. These certificates serve as proof of the TDS deducted. This allows the payee to claim a tax credit when filing their Income Tax Return. Form 16A includes details of both TDS and commission. These certificates should be promptly obtained to ensure clarity and prevent any disputes with the tax department. 

The following are the due dates for receiving TDS certificates:

Guiding Smarter Tax Practices

Section 194D ensures the timely collection of tax on insurance commissions. This helps both agents and insurance companies to stay compliant. Following the correct procedure for TDS on insurance commission prevents penalties and simplifies the return filing process for agents. These rules promote more transparency in the insurance sector. 

Conclusion

Knowing TDS on insurance commission under Section 194D is a need for every insurance agent and agency. It helps follow the rules, prevents penalties, and maintains the records up to date. But more than tax regulations, being financially secure also includes future planning using the right protection and savings resources.

Whether you need whole life coverage through a term insurance plan, long-term growth with a ULIP Plan, assured income post-retirement with a retirement plan, or steady returns with a savings scheme, Shriram Life Insurance has schemes that suit every financial objective.

With the right awareness — from tax relief to efficient financial planning — you can remain compliant today and secure tomorrow.