What is Section 194D and Section 194DA under Income Tax Act?

Section 194D: TDS on Insurance Commission

This provision of tax deduction mostly hits people who work as insurance agents for companies like LIC, HDFC Insurance, ICICI Insurance, etc.

Who is required to deduct TDS u/s 194D?

Any person who pays to resident an income in the form of remuneration or reward (as commission or otherwise) for generating insurance business.

TDS deduction provisions under Section 194D apply exclusively to resident individuals. For non-residents, Section 195 will apply.

What is the rate & time of tax deduction u/s 194D?

The rate of tax u/s 194D is 5%(Resident person other than the company)/10%( Domestic company) ( as the case may be) and 20% if the deductee does not quote his PAN. And the time of deduction is earlier of, the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft, or other modes).

Exception under Section 194D:

If the amount of such income (whether individually or in aggregate for the financial year) does not exceed Rs. 15000 or if Form 15G/H has been received, then no TDS u/s 194D is required.

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Section 194DA: TDS on Payment of Life Insurance Policy

It won’t be wrong to say that every 8 out of 10 people in India opt for a Life Insurance Policy. And why not? no one can predict the future; hence, to save oneself from any future mishap, people go for life insurance.

But you’ll be surprised to know that payment received on maturity of the insurance policy attracts provisions of tax deduction u/s 194DA if the policy is not exempt under section 10(10D). Let’s understand it as follows:

Who is required to deduct TDS u/s 194DA?

Any person who is paying an amount to a resident by way of an insurance policy (including bonus amount, if any) will have to deduct tax before releasing the amount.

What is the rate & time of tax deduction u/s 194DA?

The rate of tax u/s 194DA is 5% at the time of making the payment. (20% if the deductee does not quote his PAN)

No TDS Requirement:

In the below-mentioned situations, no TDS will be required u/s 194DA.

• Where the amount of such payment (or aggregate amount during the financial year) is less than Rs.1,00,000.
• Where the amount of insurance received is as per the following cases:

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Penalty for Late TDS Deduction under Section 194D

If the payer forgets to deduct TDS while making a payment, they are liable to pay interest at a rate of 1% per month or part of a month from the date the TDS was due until the actual deduction date.

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Difference Between Section 194D & 194DA

Section 194D

Applicability

TDS applies on the insurance commission paid to a resident for soliciting or procuring insurance business, including renewals or policy revivals.

Who Should Deduct

Any person responsible for paying such commission to a resident.

When to Deduct

At the time of:

• Crediting the amount to the payee’s account, or
• Making the payment in cash, cheque, draft, or any other mode,
  whichever is earlier.

Threshold Limit

No TDS if the commission amount is up to ₹15,000.

Rate of TDS

• Individuals/HUF: 5% (to be reduced to 2% from April 1, 2025).
• Domestic Companies: 10%.
• If PAN not provided: 20%.

Exemptions

• No TDS if the commission is within ₹15,000.
• Form 15G/15H submitted by the payee.

Section 194DA

Applicability

TDS applies on payments made to a resident under a life insurance policy, including maturity proceeds or bonuses, except those exempt under Section 10(10D).

Who Should Deduct

Any person responsible for paying such amounts to a resident.

When to Deduct

At the time of payment.

Threshold Limit

No TDS if the payment is up to ₹1,00,000.

Rate of TDS

• 5%: Only on the taxable portion (maturity amount minus premiums paid).
• From October 1, 2024, this rate will be reduced to 2%.

Exemptions

No TDS applies if:

1. Self-Declaration: Form 15G/15H is submitted.
2. Under Section 10(10D):
   
   • The policy was bought between April 1, 2003, and March 31, 2012, and premiums paid do not exceed 20% of the sum assured.
   • The policy was bought on or after April 1, 2012, and premiums paid do not exceed 10% of the sum assured.
   • The policy was bought on or after April 1, 2013, for persons with disabilities under Sections 80U or 80DDB, and premiums paid do not exceed 15% of the sum assured.

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