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The government has proposed reduction of 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 2% instead of 5%. In FY 2022, the government had increased TDS on commission income of agents to 5%.
This will provide more funds at the disposal of over 29 lakh individual agents.
In the Finance Bill memorandum, the government said, “As per provisions of section 194D, any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force which is at present 5% (in case of person other than company). It is proposed that TDS under section 194D of the Act (in case of person other than company) be reduced from 5% to 2%.”
Currently, insurance companies deduct TDS on insurance commission if the commission income exceeds Rs.15000 per annum. However, the government does not specify such a limit.
The new rule will come into effect from April 1, 2025.
Please note that 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.
