Financial Year 1987-88
Circular No. 488 was issued by the Central Board of Direct Taxes on 16 June 1987. Its subject is Financial Year 1987-88.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Sets out the rates and the changed law for deduction from insurance commission in financial year 1987-88. The section 194D rates are unchanged from Circular No. 462 dated 10 July 1986: 10 per cent for a resident other than a company and 21.5 per cent for a domestic company. Section 194D reaches only residents; for a non-corporate non-resident, section 195 with Part II of the First Schedule to Finance Act, 1987 requires 30 per cent of the insurance commission, or tax at the Sub-Paragraph I of Paragraph A of Part III rates as if it were his total income, whichever is higher, and for a company that is not a domestic company the rate is 65 per cent. The circular reproduces the new second proviso to section 194D, inserted with effect from 1 June 1987, exempting deduction where the income, or the aggregate credited or paid or likely to be credited or paid to the payee in the financial year, does not exceed Rs. 5,000; the substituted section 195(1) and (2) with the Explanation deeming a credit to an interest payable or suspense account to be credit to the payee; and the new section 203A, effective 1 June 1987, requiring a deductor without a tax deduction account number to apply for one and to quote it on challans.
The annual instruction to persons paying insurance commission, telling them the rates in force for the year and the amendments made by Finance Act, 1987 that they must now work to.
FINANCIAL YEAR 1987-88
1773. Instructions for deduction of tax at source from insurance commission during financial year 1987-88 at the rates specified in Part II of First Schedule to Finance Act, 1987
CLARIFICATION 1
1. I am directed to invite a reference to this Department’s Circular No. 462 [F.No. 275/67/86-IT(B)], dated 10-7-1986 wherein the rates at which the deduction of income-tax was to be made during the financial year 1986-87 from payment of income by way of insurance commission under section 194D were intimated. There is no change in the rate of tax for the financial year 1987-88. For the sake of convenience, the rates for deduction of tax at source under section 194D during the financial year 1987-88 are indicated below :Income-tax
I. In the case of a person (other than a company) who is a resident in India
10%
II. In the case of a domestic company
21.5%
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 payment of income by way of insurance commission) made to a non-corporate non-resident or to a foreign company. In the case of a person other than a company, who is not a resident in India, the rate of deduction of tax at source as specified in 1(b)( i)(c) of Part II of the First Schedule to the Finance Act, 1987, is income-tax at 30 per cent of the income by way of insurance commission or income-tax in respect of income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the said Schedule [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 65 per cent.
3. Under the provisions of section 194D, any person making payment of insurance commission is required to deduct tax at source at the rates in force. The Finance Act, 1987 has modified the provisions of section 194D with effect from 1-6-1987 by the insertion of the following proviso:
"Provided further that no deduction shall be made under the 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 five thousand rupees."
Similarly, sub-sections (1) and (2) of section 195 have also been substituted/amended as under:
"195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" or dividends) 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
Explanation: For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(2) Where the person responsible for paying any such sum chargeable under this Act (other than interest on securities, dividend and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Income-tax Officer to determine (in the prescribed manner), the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable :
Provided that this sub-section shall not apply to any payment to a foreign company by way of interest referred to in clause (v), or royalty referred to in clause (vi), or fees for technical services referred to in clause (vii), of sub-section (1) of section 9."
4. The Finance Act, 1987 has inserted a new section 203A in the Income-tax Act, 1961, with effect from 1-6-1987. The new section reads as under :
"203A. (1) Every person deducting tax in accordance with provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, and section 195 if he has not been allotted any tax deduction account number shall, within such time as may be prescribed, apply to the Income-tax Officer for the allotment of a tax deduction account number.
(2) Where a tax deduction account number has been allotted to a person, such person shall quote such number:—
(a) in all challans for the payment of any sum in accordance with the provisions of section 200;
(b) in all certificates issued in accordance with the provisions of section 203;
(c) in all the returns delivered in accordance with the provisions of sections 206, 206A and 206B to any income-tax authority; and
(d) in all other documents pertaining to such transactions as may be prescribed in the interests of revenue."
The Finance Act, 1987 has also substituted with effect from 1-6-1987, section 206 of the Income-tax Act with the following new section:
"206. 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 under the foregoing provisions of this Chapter shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered to the prescribed income-tax authority, such returns in such form and verified in such manner and setting forth such particulars as may be prescribed."
5. Apart from the above, there is no change in the substance of the main provisions of law insofar as they relate to deduction of income-tax from insurance commission as given in paragraph (3) of the Department’s Circular No. 426 [F. No. 275/32/86-IT(B)], dated 24-7-1985. On the consequential changes necessitated by the amendment of sections 195(1), 195(2) and 197, insertion of section 203A and substitution of section 206 of the Income-tax Act and ancillary matters, a separate Circular will be issued. In the meantime, the persons responsible for making payments under section 194D may be advised to apply for the allotment of tax-deduction account number to the concerned Income-tax Officer.
6. In the case of doubt, a reference should always be made to the provisions of the Income-tax Act and relevant Finance Act through which changes in the law/tax structures are made.
Circular: No. 488 [F. No. 275/40/87-IT(B)], dated 16-6-1987.
ANNEX - EXTRACT FROM SUB-PARAGRAPH I OF PARAGRAPH A OF PART III OF THE FIRST SCHEDULE TO FINANCE ACT, 1987
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.
CLARIFICATION 2
Deduction of tax at source computed on the basis of circular of 16-6-1987 to be increased by a surcharge at the rate of 5 per cent - Effective from 16-12-1987.
1. I am directed to invite a reference to this Department’s Circular No. 488 dated 16-6-1987 [Clarification 1] wherein the rates applicable for making deduction of income-tax at source under section 194D from the payment of income by way of insurance commission for the financial year 1987-88 were intimated to you.
2. It is brought to your notice that by section 3 of the Finance (Amendment) Act, 1987, the First Schedule to the Finance Act, 1987, has been computed on the basis of the aforesaid circular shall be increased by a surcharge for the purposes of the Union calculated at the rate of 5 per cent of such income-tax. The levy of surcharge comes into force with effect from 16-12-1987.
Circular: No. 508 [F.No. 275/23/88-IT(B)], dated 23-2-1988.
In a section 201 order against an insurer for short deduction on agents' commission for that year, or where an agent's credit for tax deducted is examined.
Source: the Income Tax Department’s own published text — its page for this instrument.