Have you purchased life insurance? Due to the reduction in the Tax Deducted at Source (TDS) rate to 2%, you will now get a larger payment. The Budget 2024–25 paper says, "It is proposed that TDS under section 194DA of the Act be reduced from 5% to 2%."

For insurers, what does this mean?

Section 194D of the Income Tax Act states that if you normally buy insurance through agents or brokers, the commission or any other compensation they earn is liable to TDS. The TDS rate for these commissions will decrease from 5% to 2% on April 1, 2025. Likewise, with effect from October 1, 2024, the TDS rate will drop from 5% to 2% for bonuses paid on life insurance policies and funds (except from sums not included in total income under Section 10D).

Who gains when TDS is reduced?

Policyholders will get more money if the TDS is lower. Also, the people who have annuity plans stand to gain the most since their payouts will be larger.

"The Budget proposals will ensure that policyholders gain more value from their life insurance policies," states Sarbvir Singh, Joint Group CEO of PB Fintech. The majority of those who will profit from this reform are those who rely on income from life insurance policies like annuities.This will result in fewer TDS refund claims being made, which will increase funds on hand and benefit lower income groups particularly. This will encourage retirement planning and the purchase of pension goods even more, resulting in a future that is more financially secure." As the TDS on their commissions is being decreased, insurance agents and brokers will also see improved cash flow.

When is Section 194D TDS deducted?

Under Section 194D, TDS is withheld from insurance commissions in the following situations:

1. The commission is deposited to the payee's account; or 2. The payment is paid in cash, check, or kind.

When does Section 194D not require TDS to be deducted?

If the commission paid is less than Rs 15,000, TDS is not withheld.

2. Form 15G/15H is used to submit a self-declaration.

Dates by which TDS Collection and Certifications are Due

TDS must be submitted by the next month's seventh in order to be collected on commissions given to insurance agents. On the following dates, TDS certificates summarizing the payments and deductions are issued:

April – June: August 15

July – September: November 15

October – December: February 15

January – March: June 15