Section 194D of ITA, 1961 : Section 194D: Insurance Commission

Explanation using Example

Imagine that Priya is an insurance agent working with a life insurance company. She earns commissions based on the insurance policies she sells. For the financial year, Priya's total commission amounts to ₹20,000. According to Section 194D of the Income-tax Act, 1961, the insurance company is responsible for deducting income tax from Priya's commission because it exceeds the threshold of ₹15,000. The tax should be deducted at the time the commission is either credited to Priya's account or paid to her, whichever occurs first.

In this scenario, if Priya's commission is credited to her bank account on September 10th, the insurance company must deduct the tax on that date. If instead, the company decides to pay her by cheque, and the cheque is issued on September 5th but credited on September 12th, the tax should be deducted on September 5th, the earlier date.