Deduction of income-tax at source-Section 194D of the Income-tax Act, 1961-Deduction from insurance commission, etc.-Rate of tax applicable during the Financial Year 1987-88 - Income Tax - 488/1987

Deduction of income-tax at source-Section 194D of the Income-tax Act, 1961-Deduction from insurance commission, etc.-Rate of tax applicable during the Financial Year 1987-88 Circular No. 488 Dated 16/6/1987 From Shri B. Nagarajan, Director, Central Board of Direct Taxes. To All Insurance Companies. Sir, Subject: Deduction of income-tax at source-Section 194D of the Income-tax Act, 1961-Deduction from insurance commission, etc.-Rate of tax applicable during the Financial Year 1987-88. I am directed to invite a reference to this Department's Circular No. 462 (F. No. 275/67/86-IT(B)) dated 10-7-86 (printed at [1986] 160 ITR (St.) 58) 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 of the Income-tax Act, 1961, 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 of the Income-tax Act, 1961, 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 of the Income-tax Act, 1961, apply only in relation to income by way of insurance commission paid to a resident, under the provisions of section 195 of the Income-tax Act, 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% of the income by way of insurance commission or income-tax in respect of income at the rates prescribed in sub-paragraph 1 of Paragraph A of Part III of the said Schedule (extracts given in annexure), 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%. 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 the 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 in so far 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 (printed at [1985] 155 ITR (St.) 47). 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 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. 7. The contents of the circular may please be brought to the notice of all concerned. In case of doubt, the ITO concerned and/or the Local Public Relation Officer may be approached for the same. Copies of the Circular will be available with the Director of Inspection (RS PR), 6th Floor, Mayur Bhawan, Connaught Circus, New Delhi-110 001. Yours faithfully, (Sd.) B. Nagarajan, Director, Central Board of Direct Taxes.