Budget 2024 Updates
In an effort to enhance ease of doing business and improve taxpayer compliance, the rate of TDS on insurance premium commissions and payment of life insurance policy under Section 194D and Section 194DA is proposed to be reduced from 5% to 2%. The reduced TDS rate under Section 194D will be effective from April 1, 2025, while the revised rate under Section 194DA will be applicable from October 1, 2024.
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.
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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