The government has restored the rate of tax deduction at source (TDS) applicable on commission income of insurance agents.
With this, insurance commission will be subject to TDS of 5% instead of 3.75%. Last year, the government had reduced TDS on commission income of agents by 25% to provide more funds at the disposal of individuals during the pandemic.
The move will affect 25 lakh insurance agents who receive commission income from insurance companies. Currently, insurance companies deduct TDS on insurance commission if the commission income exceeds Rs.15000 per annum.
Agents can claim refund on this TDS based on their tax liability at the time of filing returns.
Remember that, TDS is over and above GST. Remember that insurance commission is subject to GST from Re.1. There is no exemption or threshold limit like Rs.20 lakh in mutual funds for insurance agents.
Currently, insurance companies follow reverse charge mechanism (RCM) on commission of up to Rs.20 lakh i.e. they pay GST from your commission income along with TDS before disbursing the net commission. This practise varies from company to company.
