Budget 2024 proposes lower TDS for insurance commission, bonus payment

The Union Budget on Tuesday has proposed to reduce Tax Deduction at Source (TDS) for insurance commission to individual agents and in the case of payment of bonus or proceeds in life insurance policies upon maturity.

The TDS is recommended to be brought down to 2 per cent for individual agents from the existing 5 per cent effective from April 1, 2025.

Similarly, the TDS for the payment of bonus on life insurance policies and funds other than the amount not includible in the total income under Section 10D has been proposed to be brought down to 2 per cent from 5 per cent effective from October 1, 2024.

This rationalisation is expected to ensure higher cash flow for the brokers and policyholders.

“Rationalisation of TDS from 5% to 2% for payment of insurance commission to individual agents will ensure additional income in the hands of such individuals for payments made by the insurers. TDS reduction to 2% for payment of bonus or proceeds made on life insurance policies upon maturity will also ensure higher receivables for individual policyholders,” said Parimal Heda, Chief Investment Officer, Go Digit General Insurance.

Further, the budget has also repeated the GST Council’s views that the sharing of co-insurance premiums by the lead insurer to the co-insurers in the co-insurance agreement and the services rendered by insurers to reinsurance companies with respect to ceding or reinsurance commission will not be treated as supply of goods and services.

“This issue was the bone of contention between GST authorities and insurers for the past few years and is a welcome clarification for the insurance sector, as the heavy burden of potential GST payments for such arrangements will now be lifted,” said Shailaja Lall, Partner, Insurance & Reinsurance, Shardul Amarchand Mangaldas & Co.