INCOME TAX

Section 194D of the Income-tax Act, 1961--Deduction of tax at source from insurance commission during the financial year 1992-93.

Circular No. 633

Dated 20/8/1992

Reference is invited to the Board's Circular No.614 (F. No. 275/139/91-IT(B)), dated 14th November, 1991 (See [1991] 192 ITR (St.) 258), wherein the rates at which the deduction of income-tax at source was to be made during the financial year 1991-92, from payment of income by way of insurance commission, under section 194D of the Income-tax Act, 1961, were communicated.

2. There is no change in the rates for deducting income-tax from insurance commission paid during the financial year 1992-93. These rates are as under:

(i) in the case of a non-corporate resident person - 10%

(ii) in the case of domestic company - 21.5%

3. Further, the amount of income-tax deducted at the aforesaid rates is to be increased by a surcharge at the rate of 12% in the case of a non-corporate resident person and at the rate of 15% in the case of a domestic company.

4. It may be noted that the provisions of section 194D apply in relation to income by way of insurance commission paid to a resident only. However, under the provisions of section 195, income-tax is required to be deducted from payments (including payments by way of insurance commission) made to a non-corporate non-resident assessee or to a foreign company also.

5. According to the provisions of section 194D, any person 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 insurance policies) is required to deduct at the time of actual payment or at the time of credit of such income, whichever is earlier, income-tax at the rates in force. However, no such deduction is required to be made in a case where the amount of such income or the aggregate amount of such income during the financial year does not exceed Rs. 5,000.

6. There is also a provision in the Income-tax Act for deduction of tax at source under section 194D at lower rate or no deduction in certain cases. For this purpose, a certificate for deduction of tax at lower rate or no deduction can be obtained from the Assessing Officer, under the provision of sub-section (1) of section 197, which has been amended by the Finance Act, 1992, so as to enable any person (including a company) to obtain this certificate, in case his total income justifies deduction of tax at a lower or nil rate. For this purpose, an application can be made, in Form No.13, to the Assessing Officer. Where any such certificate is given, the person responsible for paying the insurance commission shall deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

7. The responsibilities, obligations, etc. under the Income-tax Act, of the person deducting tax at source are as follows:

(a) According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 194D shall pay, within the prescribed time (as laid down in rule 30 of the Income-tax Rules, 1962), the sum so deducted to the credit of the Central Government. In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of the deduction itself. In other cases, normally the same has to be paid within one week from the last day of the month in which the deduction is made. If a person fails to pay the tax to the credit of the Central Government, he shall be liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest at 15% per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Further, section 271C lays down that if any person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax no deducted by him. Further, section 276B of the Act lays down that if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

(b) According to the provisions of section 203, every person deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein the amount deducted, and, certain other particulars. This certificate for deduction of tax at source under section 194D has to be furnished within one month of the close of the financial year to the person to whose account credit is given or to whom payment is made by any mode, as the case may be. The certificate should be issued in Form No. 16A (copy at annexure I) by the tax deductors on their own stationery. If a person fails to issue a certificate as required by section 203, he shall be liable to pay way of penalty, under section 272A, a sum which shall not be less than Rs.100 but which may extend to Rs. 200 for each day during which the failure continues.

(c) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the Tax Deduction Account Number (TAN) in the challans, TDS certificates, returns, etc. Detailed instructions in this regard are available in the Board's Circular No.497 (F.No. 275/118/87-IT(B)), dated 9th October, 1987 (See [1988] 169 ITR (St.) 54). If a person fails to comply with the provisions of section 203A, he shall be liable to pay by way of penalty, under section 272BB, a sum up to Rs. 5,000.

(d) According to the provisions of section 206, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax at source shall prepare and deliver by the 30th June, following the financial year, to the designated/concerned Assessing Officer the annual return of deduction of tax from insurance commission in Form No. 26D. It may be noted that a copy of each TDS certificate issued during the financial year should be enclosed with the annual return. If a person fails to furnish in due time the annual return, he shall be liable to pay, by way of penalty under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues. However, the maximum penalty will not exceed the amount of tax deductible.

8. These instructions are not exhaustive and are issued only with a view to helping the person responsible for making deduction of tax at source under section 194D. Wherever there is any doubt, a reference may be made to the provisions of the Income-tax Act, 1961, and the Finance Act, 1992. In case any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached.

9. The contents of this Circular may please be brought to the notice of all concerned.

10. Copies of this Circular will be available with the Directorate of Income-tax (RSP & PR), 6th Floor, Mayur Bhawan, Connaught Circus, New Delhi-110001.

 (Sd.) Rajesh Chandra,

Under Secretary,

Central Board of Direct Taxes.

ANNEXURE-I

"Form No. 16A

[See rule 31(1)(b)]

Certificate of deduction of tax at source under section 203 of the Income-tax Act, 1961.