Financial Year 1985-86
Circular No. 426 was issued by the Central Board of Direct Taxes on 24 July 1985. Its subject is Financial Year 1985-86.
The year's instruction on deducting tax from insurance commission. Under Part II of the First Schedule to Finance Act, 1985 the section 194D rates for financial year 1985-86 are 10 per cent with nil surcharge for a resident other than a company, and 21.5 per cent plus 1.075 per cent surcharge for a domestic company. Section 194D covers residents only; for a non-corporate non-resident, section 195 requires the higher of 30 per cent of the commission and tax at the Sub-Paragraph I, Paragraph A, Part III rates as if it were his total income, and for a company that is not a domestic company the rate is 68.25 per cent, being 65 per cent tax plus 3.25 per cent surcharge. It also restates the working rules: insurance commission means remuneration or reward, by commission or otherwise, for soliciting or procuring insurance business including continuance, renewal or revival of policies; deduction is at credit or payment, whichever is earlier; the tax must reach the Government within one week of the end of the month of deduction, or within two months of the end of the month in which the payer's accounting date falls where the commission is credited as on that date; payment is on Challan No. 2 for companies and Challan No. 8 for non-companies, with surcharge shown separately; the amount is rounded to the nearest rupee under section 288B; no adjustment is allowed for debits for excess commission credited earlier, tax being deducted on the full commission credited; and a non-company recipient may apply in Form No. 13D.
The annual circular telling insurers the rates and procedure for the coming financial year, following Circular No. 391 dated 8 August 1984 which had done the same for financial year 1984-85.
FINANCIAL YEAR 1985-86
1775. Instructions for deduction of tax at source from insurance commission during financial year 1985-86 at the rates specified in Part II of First Schedule to Finance Act, 1985
1. I am directed to invite a reference to this Department’s Circular No. 391 [F. No. 275/17/84-IT(B)], dated 8-8-1984 wherein the rates at which the deduction of income-tax was to be made during the financial year 1984-85 from payments of income by way of insurance commission under section 194D were intimated.
The Finance Act, 1985 prescribes in Part II of the First Schedule, the following rates for deduction of tax at source under section 194D during the financial year 1985-86:Income-tax
Surcharge
I.
In the case of a person (other than a company), who is resident in India
10 per cent
Nil;
II.
In the case of a domestic company
21.5 per cent
1.075 per cent.
2. Though the provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident, under the provisions of section 195 income-tax is required to be deducted from payments (including payments of income by way of insurance commission) made to a non-corporate non-resident taxpayer as also a company which is neither an Indian company nor a company which has made the prescribed arrangements for declaration and payment within India of dividends in the manner prescribed under rule 27 of the Income-tax Rules, 1962. In the case of a person other than a company, who is not resident in India, the rate of deduction of tax at source, as specified in item 1(b)( i) of Part II of the First Schedule to the Finance Act, 1985, is income-tax at 30 per cent of the income by way of insurance commission or income-tax in respect of the income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the said Schedule (extracts given in Annex) if such income had been the total income of such person, whichever is higher. In the case of a company which is not a domestic company, tax on insurance commission is to be deducted at the rate of 68.25 per cent (income-tax 65 per cent plus surcharge 3.25 per cent).
3. The substance of the main provisions in the law insofar as they relate to deduction of income-tax from insurance commission is given hereunder;
(1) For purposes of deduction of tax at source "insurance commission" will mean an income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to continuance, renewal or reviving of policies of insurance).
(2) Deduction will be made at the time of the credit of the income to the account of, or the payment thereof (by whatever mode) to the payee, whichever is earlier.
(3) The tax deducted should be paid to the credit of the Central Government by remitting it into the Government Treasury or the office of the Reserve Bank of India or State Bank of India or any other authorised public sector bank within one week from the last day of the month in which the deduction is made. In cases where the income by way of insurance commission is credited to the account of the payee as on the date up to which the accounts of the business of the payer are made, the tax deducted therefrom may be paid to the credit of the Central Government within two months of the expiration of the month in which the date, up to which the accounts are made, falls.
(4) Blank challans for making payment of the tax deducted at source can be obtained from the Income-tax Officers. For the convenience of taxpayers colour band challan forms have been prescribed. Each such challan form is also numbered on the top left hand corner. The payment should be made on the appropriate challan accordingly as indicated below :Deduction of tax from payment of insurance commission made to companies
Challan No. 2 [in red colour band]
Deduction of tax from payment of insurance commission made to non-companies, i.e., individuals, etc.
Challan No. 8 [in blue colour band]
It is very necessary for correct accounting of tax payments in the Income-tax Department that the appropriate challan form is used for making the payments.
Where the payment of tax includes any surcharge, it should be shown separately in the challan, in the space provided for that purpose.
(5) The amount of tax to be deducted at source should be rounded off to the nearest rupee ignoring amounts less than 50 paise and increasing the amount of 50 paise or more to one rupee, as required under section 288B.
(6) At the time of deducting tax from the insurance commission credited to an agent’s account, adjustment for any debits made in his account in respect of excess commission credited or paid to him earlier is not permissible and income-tax must be deducted from the full amount of commission credited to his account.
(7) It will be open to the recipient of the commission, other than a company, to make an application in Form No. 13D to the Income-tax Officer concerned and obtain from him a certificate authorising the person responsible for paying the income by way of insurance commission to deduct tax at source at such rates, or deduct no tax, as may be appropriate to his case. Such a certificate will be valid for the period specified therein unless it is cancelled by the Income-tax Officer earlier.
(8) The person responsible for making the payments should issue a certificate to the payee in Form No. 19D showing therein the amount of income by way of insurance commission credited or paid, the amount of tax deducted at source, and the date of payment to the Government account.
(9) The person making deduction of tax in accordance with section 194D from income by way of insurance should send to the Income-tax Officer having jurisdiction to assess him :
(a) A certificate in Form No. 26D quarterly on July 15, October 15, January 15 and April 15, in respect of deduction of tax made by him during the preceding quarter.
(b) A statement in Form No. 26E on or before 30th June each year containing details of amounts of insurance commission from which tax has been deducted by him during the immediately preceding financial year.
(c) A statement in Form No. 26F on or before 30th day of June each year containing details of amount of insurance commission paid or credited during the immediately preceding financial year without deduction of tax.
Circular: No. 426 [F. No. 275/32/85-IT(B)], dated 24-7-1985.
ANNEX I - EXTRACT FROM SUB-PARAGRAPH I OF PARAGRAPH A OF PART III OF THE FIRST SCHEDULE TO FINANCE ACT, 1985
Paragraph A
Sub-Paragraph I
In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii ) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other paragraph of this Part applies:—
Rates of income-tax(1 )
where the total income does not exceed Rs. 18,000
Nil;
(2 )
where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000
25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3 )
where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000
Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(4 )
where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000
Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
(5 )
where the total income exceeds Rs. 1,00,000
Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.
In an old section 201 proceeding against an insurer, or where an agent's credit for tax deducted on commission is verified.
Forms it names. Form No. 13D, Form No. 19D, Form No. 26D, Form No. 26E, Form No. 26F
Rules it names. Rule 27 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.
