Tax Deducted at Source (TDS) is a crucial compliance requirement for insurance companies in India. The Income Tax Act, 1961, mandates TDS deductions on various payments made by insurance companies to policyholders, agents, and other entities. Ensuring adherence to these regulations helps prevent legal complications and financial penalties. This blog provides a comprehensive overview of TDS compliances for insurance companies.
1. Key TDS Provisions Applicable to Insurance Companies
Insurance companies must deduct TDS under various sections of the Income Tax Act. Below are some of the key provisions:
A) TDS on payment of ‘INTEREST’ Under MOTOR ACCIDENT CLAIM (Section 194A)
- TDS is deducted under Section 194A when interest is paid on motor accident claims.
- TDS is applicable only on interest component of the compensation, not on the principal amount.
- The deduction is made when the aggregate interest payment exceeds ₹50,000 in a Financial Year.
- TDS is deducted at 10% if the recipient has provided a PAN and 20% if the recipient has not provided a PAN.
- Form 15G/15H can be submitted by the claimant (if eligible) to claim exemption from TDS.
B) TDS on Commission to Insurance Agents (Section 194D)
- Insurance companies pay commissions to their agents for policies procured.
- Under Section 194D of the Income Tax Act, 1961, Tax Deducted at Source (TDS) is applicable on payments made to insurance agents and other intermediaries as commission.
- TDS Rates
| Recipient | TDS Rate (if PAN is provided) | TDS Rate (if PAN is NOT provided) |
| Insurance Agents (Individuals and HUF) | 5% | 20% |
| Domestic Companies (receiving commission) | 10% | 20% |
- No TDS is required if the total commission paid does not exceed ₹15,000 in a financial year.
C) TDS on Insurance Claims (Section 194DA)
- Payments made on life insurance policy maturity or surrender are subject to TDS.
- If the amount paid exceeds Rs. 1,00,000, TDS at 2% (5% up to 30th Sept 2024) is deducted on the total sum paid (excluding premiums paid by the policyholder).
- No TDS if the proceeds are exempt under Section 10(10D).
D) TDS on Professional Fees & Contractual Payments (Section 194J & 194C)
- Payments made to consultants, surveyors, or third-party vendors attract TDS.
- 194J (Professional Fees): Professional services include legal, medical, engineering, architecture, consultancy, CA, CS, and any-related services.
- TDS Rates
| Type of Payment | TDS Rate (if PAN is Provided) | TDS Rate (if PAN is NOT Provided) |
| Professional Fees | 10% | 20% |
| Technical Services | 2% | 20% |
- No TDS if the total payment in a financial year is ₹30,000 or less per payee.
- 194C (Contractual Services): Contractors undertaking work contracts, including supply of labor, transport, advertising, catering, and manufacturing under contract.
- TDS Rates
| Payee | TDS Rate (if PAN is Provided) | TDS Rate (if PAN is NOT Provided) |
| Individual / HUF Contractor | 1% | 20% |
| Firm / Company Contractor | 2% | 20% |
- No TDS if A single contract payment is ₹30,000 or less or Total payments to a contractor in a financial year do not exceed ₹1,00,000.
2. TDS Payment and Return Filing Obligations
Insurance companies must comply with timely deposit and filing requirements:
- Deposit Deadlines:
- TDS deducted in a month must be deposited by the 7th of the following month.
- For March, the deadline is April 30th.
- Quarterly TDS Return Filing:
- Form 26Q (for non-salary TDS) must be filed quarterly by the last day of the month following the quarter.
- Form 27Q for payments to non-residents.
- TDS Certificate Issuance:
- Form 16A (for non-salary TDS) to be issued by the 15th of the month after filing.
3. Consequences of Non-Compliance
Failure to comply with TDS regulations can lead to:
- Interest on late deposit: 1% per month for non-deduction, 1.5% per month for late deposit.
- Late filing fee: Rs. 200 per day until the return is filed.
- Disallowance of expenses: If TDS is not deducted, the expenditure is not allowed as a deduction under income tax.
4. Best Practices for Compliance
To ensure smooth TDS compliance, insurance companies should:
- Automate TDS deduction and reconciliation processes.
- Conduct periodic audits of TDS compliance.
- Ensure timely deposit and accurate return filing.
- Train employees on tax compliance and regulatory updates.
Conclusion
TDS compliance is a critical responsibility for insurance companies. Adhering to the provisions of the Income Tax Act ensures regulatory compliance and prevents financial penalties. By implementing robust internal processes and staying updated on tax laws, insurance companies can efficiently manage their TDS obligations.
