The insurer deducted tax on my agency commission even though it was under twenty thousand rupees for the year. What is the s.194D threshold, and which year does my case fall in?
Section 194D obliges any person paying a resident 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 — to deduct at the rates in force, at credit or payment, whichever is earlier. The second proviso stops deduction where the amount of such income, or the aggregate of the amounts credited or paid or LIKELY to be credited or paid during the financial year to the payee, does not exceed twenty thousand rupees as the section now stands; the editions as amended up to 2020 and up to 2023 print fifteen thousand rupees, and those as amended up to 2012 and up to 2014 print twenty thousand rupees, substituted for five thousand by the Finance Act, 2010 with effect from 1 July 2010.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2010-07-01, reported as Section 194D of the Income-tax Act, 1961, as amended up to 2026. It bears on section 194D, section 194DA, section 194G, section 195 of the Income Tax Act 1961, in TDS Defaults and How Tax Law Is Read matters.
Two things about this section trip people up. The first is the word 'likely'. The threshold proviso is not a wait-and-see rule: it disapplies deduction only where the amount credited or paid, or LIKELY to be credited or paid, during the financial year does not exceed the threshold. An insurer who knows from the agent's book that the year's commission will cross the figure cannot decline to deduct on the first small payment on the footing that the threshold has not yet been reached. The second is that s.194D states no rate at all. It says 'at the rates in force', which means Part II of the First Schedule to the relevant Finance Act — so a rate quoted from a commentary or from another section is worth nothing here and the practitioner must go to the Finance Act for the year. The threshold itself has gone up, down and up again — five thousand rupees, then twenty thousand from 1 July 2010, then fifteen thousand on the editions as amended up to 2020 and up to 2023, then twenty thousand again as it now stands — so the single most important step is to fix the financial year before quoting a figure. Note finally that the section is confined to a RESIDENT payee and to remuneration for soliciting or procuring insurance business; commission on the sale of lottery tickets has its own section in s.194G, and a payment under a life insurance policy is s.194DA and not this section.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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The section as printed on the live page reads: 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. First proviso: no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973. Second proviso: no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed twenty thousand rupees. The section was inserted by the Finance Act, 1973 with effect from 1 April 1973; the threshold proviso was inserted by the Finance Act, 1987 with effect from 1 June 1987.
As the section now stands: the duty is on any person paying a resident remuneration or reward for soliciting or procuring insurance business, including continuance, renewal or revival business; the deduction point is credit or payment, whichever is earlier; the rate is the rate in force under the Finance Act and is not stated in the section; and no deduction is made where the amount credited or paid, or likely to be credited or paid, during the financial year does not exceed twenty thousand rupees. The threshold read five thousand rupees on the editions up to 2009, twenty thousand rupees on those as amended up to 2012 and up to 2014 after the Finance Act, 2010 substitution effective 1 July 2010, fifteen thousand rupees on those as amended up to 2020 and up to 2023, and twenty thousand rupees again as it now stands.
Not applicable — this is a statement of the statutory text as printed in the published editions of the section, with such amendment history as their footnotes carry. No judicial reasoning is involved.
Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed twenty thousand rupees.
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Handle my notice → Ask a CA on WhatsAppSection 194D obliges any person paying a resident 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 — to deduct at the rates in force, at credit or payment, whichever is earlier. The second proviso stops deduction where the amount of such income, or the aggregate of the amounts credited or paid or LIKELY to be credited or paid during the financial year to the payee, does not exceed twenty thousand rupees as the section now stands; the editions as amended up to 2020 and up to 2023 print fifteen thousand rupees, and those as amended up to 2012 and up to 2014 print twenty thousand rupees, substituted for five thousand by the Finance Act, 2010 with effect from 1 July 2010. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 194D, section 194DA, section 194G, section 195 of the Income Tax Act 1961. It is reported as Section 194D of the Income-tax Act, 1961, as amended up to 2026. Two things about this section trip people up. The first is the word 'likely'. The threshold proviso is not a wait-and-see rule: it disapplies deduction only where the amount credited or paid, or LIKELY to be credited or paid, during the financial year does not exceed the threshold. An insurer who knows from the agent's book that the year's commission will cross the figure cannot decline to deduct on the first small payment on the footing that the threshold has not yet been reached. The second is that s.194D states no rate at all. It says 'at the rates in force', which means Part II of the First Schedule to the relevant Finance Act — so a rate quoted from a commentary or from another section is worth nothing here and the practitioner must go to the Finance Act for the year. The threshold itself has gone up, down and up again — five thousand rupees, then twenty thousand from 1 July 2010, then fifteen thousand on the editions as amended up to 2020 and up to 2023, then twenty thousand again as it now stands — so the single most important step is to fix the financial year before quoting a figure. Note finally that the section is confined to a RESIDENT payee and to remuneration for soliciting or procuring insurance business; commission on the sale of lottery tickets has its own section in s.194G, and a payment under a life insurance policy is s.194DA and not this section. If it applies to you, the first step is this: Fix the financial year, then take the threshold for that year — and do not quote twenty thousand rupees for a year in which the departmental text read fifteen thousand.
The section as printed on the live page reads: 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. First proviso: no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973. Second proviso: no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed twenty thousand rupees. The section was inserted by the Finance Act, 1973 with effect from 1 April 1973; the threshold proviso was inserted by the Finance Act, 1987 with effect from 1 June 1987. The matter was decided on 2010-07-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. As the section now stands: the duty is on any person paying a resident remuneration or reward for soliciting or procuring insurance business, including continuance, renewal or revival business; the deduction point is credit or payment, whichever is earlier; the rate is the rate in force under the Finance Act and is not stated in the section; and no deduction is made where the amount credited or paid, or likely to be credited or paid, during the financial year does not exceed twenty thousand rupees. The threshold read five thousand rupees on the editions up to 2009, twenty thousand rupees on those as amended up to 2012 and up to 2014 after the Finance Act, 2010 substitution effective 1 July 2010, fifteen thousand rupees on those as amended up to 2020 and up to 2023, and twenty thousand rupees again as it now stands.
Not applicable — this is a statement of the statutory text as printed in the published editions of the section, with such amendment history as their footnotes carry. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed twenty thousand rupees."
It was decided by the CBDT Circulars & Instructions on 2010-07-01 and is reported as Section 194D of the Income-tax Act, 1961, as amended up to 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 194D, section 194DA, section 194G, section 195, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. As the section now stands: the duty is on any person paying a resident remuneration or reward for soliciting or procuring insurance business, including continuance, renewal or revival business; the deduction point is credit or payment, whichever is earlier; the rate is the rate in force under the Finance Act and is not stated in the section; and no deduction is made where the amount credited or paid, or likely to be credited or paid, during the financial year does not exceed twenty thousand rupees. The threshold read five thousand rupees on the editions up to 2009, twenty thousand rupees on those as amended up to 2012 and up to 2014 after the Finance Act, 2010 substitution effective 1 July 2010, fifteen thousand rupees on those as amended up to 2020 and up to 2023, and twenty thousand rupees again as it now stands. It arises in TDS Defaults and How Tax Law Is Read matters, on section 194D, section 194DA, section 194G, section 195 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Apply the 'likely to be credited or paid' limb at the start of the year, not at the end. If the agent's expected commission for the year exceeds the threshold, deduct from the first payment. Take the rate from Part II of the First Schedule to the Finance Act for that year; the section supplies none. Check the deduction point: credit to the account of the payee or payment in cash, by cheque, draft or any other mode, whichever is earlier. Crediting a commission payable account triggers the section even if nothing is paid out. Confirm the payee is a resident. Section 194D does not reach a non-resident agent, for whom the analysis is under s.195. Keep s.194D, s.194DA and s.194G apart: this section is commission for soliciting or procuring insurance business, s.194DA is a payment under a life insurance policy to the policyholder, and s.194G is commission on the sale of lottery tickets.
Still good law. The gap in this entry is closed. The edition of s.194D as amended up to 2025 carries the amendment footnote that the current text omits, and it dates and attributes every threshold change: from five thousand to twenty thousand rupees by Act No. 14 of 2010 with effect from 1 July 2010; from twenty thousand down to fifteen thousand by Act No. 28 of 2016 with effect from 1 June 2016; and back up to twenty thousand by Act No. 7 of 2025, the Finance Act 2025, with effect from 1 April 2025. The current threshold of twenty thousand rupees therefore has a named Act and a commencement date behind it. The operative words of the section are stable across every edition read and are not in doubt, and the section states no rate because deduction is at the rates in force, which are set by the Finance Act for the year. A practitioner acting on a threshold for a financial year between 2015-16 and 2025-26 should still read it off the footnote chain above for the year in question. The section belongs to the Income-tax Act 1961, replaced by the Income-tax Act 2025 with effect from 1 April 2026; the 1961 provision continues to govern the earlier years. Two further limits. No judicial decision construing s.194D has been found, so nothing here is a survey of the authority, and the questions that generate the disputes - whether a particular payment is remuneration or reward for soliciting or procuring insurance business, and whether the payer was in a position to know that the year's commission was 'likely' to cross the threshold - are not answered by the statutory text. And the section reaches a resident payee only; a payment to a non-resident agent falls under s.195 and nothing in this entry applies to it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THE THRESHOLD CHAIN, because it is the whole of this entry and the figure has moved three times. The current text of the section prints twenty thousand rupees and carries no footnote list at all, so it supplies no amending Act. The edition as amended up to 2025 does: it dates and attributes every change — from five thousand to twenty thousand rupees by Act No. 14 of 2010 with effect from 1 July 2010; from twenty thousand down to fifteen thousand by Act No. 28 of 2016 with effect from 1 June 2016; and back up to twenty thousand by Act No. 7 of 2025, the Finance Act 2025, with effect from 1 April 2025. Those are the dates stated in this entry, and they are corroborated by the printed text at successive editions: the editions as amended up to 2020 and up to 2023 print fifteen thousand rupees; those as amended up to 2012 and up to 2014 print twenty thousand, each carrying the footnote 'Substituted for "five" by the Finance Act, 2010, w.e.f. 1-7-2010'; and the editions up to 2009, and back to 1990, print five thousand rupees. The editions as amended up to 2018 and up to 2024 also print fifteen thousand rupees and carry no footnote, which brackets the restoration to twenty thousand between the 2024 text and the current one and agrees with the 1 April 2025 date. Read the figure for the financial year in hand rather than from the current text. THE PRE-1987 POSITION. The editions as amended up to 1980, 1981 and 1985 print only the first proviso and have no threshold at all; the threshold proviso is footnoted on later editions as inserted by the Finance Act, 1987 with effect from 1 June 1987. THE 'decided_on' FIELD carries a commencement date and not a decision date: 1 July 2010, the Finance Act, 2010 substitution. It is deliberately not the vintage of any printing, because a printing's vintage is not a commencement date. One point of scope: this entry states the threshold and the machinery only. The section prescribes no rate — deduction is 'at the rates in force', which means Part II of the First Schedule to the relevant Finance Act — so no rate is given anywhere in this entry and none should be inferred from it. Nor does the entry deal with s.194DA, which is the separate provision for a payment under a life insurance policy, or with s.194G, which covers commission on the sale of lottery tickets; both are sometimes confused with this section because the payees overlap. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
As the section now stands: the duty is on any person paying a resident remuneration or reward for soliciting or procuring insurance business, including continuance, renewal or revival business; the deduction point is credit or payment, whichever is earlier; the rate is the rate in force under the Finance Act and is not stated in the section; and no deduction is made where the amount credited or paid, or likely to be credited or paid, during the financial year does not exceed twenty thousand rupees. The threshold read five thousand rupees on the editions up to 2009, twenty thousand rupees on those as amended up to 2012 and up to 2014 after the Finance Act, 2010 substitution effective 1 July 2010, fifteen thousand rupees on those as amended up to 2020 and up to 2023, and twenty thousand rupees again as it now stands.
TaxSphere, “Statutory position — s.194D: insurance commission, the threshold, and why the section states no rate”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-194d-insurance-commission-threshold-and-the-rates-in-force-machinery/ (validity last checked 2026-09-16)
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My insurer deducted tax on the whole maturity amount, not on the gain. Was that right, and from what date is s.194DA computed on the income component only?
My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
I pay my selling agents a percentage on every order they bring in, and I give my distributors a discount off the list price. Do I deduct under section 194H, at what rate, and from what figure does the obligation start?
The lottery distributor deducted ten per cent from my agency commission. What is the correct rate and threshold under s.194G, and when did they change?
