Budget 2024: Higher payouts for life insurance from October 1; know more

Starting April 1, 2025, the TDS rate for commissions will drop from 5% to 2%

Have you bought a life insurance policy? You will now receive a higher payout as the Tax Deducted at Source (TDS) rate has been lowered to 2%.

"It is proposed that TDS under section 194DA of the Act be reduced from 5% to 2%," the Budget 2024-25 document states.

What does this mean for insurers?

If you typically purchase insurance through agents or brokers, the commission or any other remuneration they receive is subject to TDS under Section 194D of the Income Tax Act. Starting April 1, 2025, the TDS rate for these commissions will drop from 5% to 2%.

Similarly, for payments of bonuses on life insurance policies and funds (except for amounts not includible in the total income under Section 10D), the TDS rate will also decrease to 2% from 5%, effective October 1, 2024.

Who benefits from lower TDS?

A lower TDS means policyholders will get more money. Those with annuity plans will benefit the most, as they will receive higher payouts.

Sarbvir Singh, Joint Group CEO of PB Fintech, says, "The Budget proposals will ensure that policyholders gain more value from their life insurance policies. People who depend on income from life insurance plans like Annuity will benefit the most from this change. This will translate to less claim filings for TDS refund - resulting in more cash-in-hand, especially beneficial for lower income groups. This will further incentivise investing in pension products and retirement planning - leading to a more financially secured future."

Insurance agents and brokers will also see better cash flow as the TDS on their commissions is reduced.

When is TDS deducted under Section 194D?

TDS on insurance commission under Section 194D is deducted when:

1. The commission is credited to the payee's account, or

2. The payment is made in cash, cheque, or kind.

When is TDS not deducted under Section 194D?

TDS is not deducted if:

1. The commission paid is less than Rs 15,000.

2. A self-declaration is submitted under Form 15G/15H.

Due dates for TDS collection and certificates

TDS collected on commissions paid to insurance agents must be deposited by the 7th of the next month. TDS certificates summarising the payments and deductions are issued on the following dates:

April – June: August 15

July – September: November 15

October – December: February 15

January – March: June 15