ITR filing for Insurance agent
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What is an ITR?
An Income Tax Return (ITR) is a form that individuals and entities use to report their income, expenses, deductions, and taxes paid to the government. It is a crucial document for ensuring that taxpayers fulfill their legal duty to report their financial activities for a financial year from April 1st to March 31st.
Income Sources for Insurance Agents
Insurance agents have a unique income structure primarily based on commissions earned from selling insurance policies. However, there are several other income sources that they might encounter. Understanding and accurately reporting these income streams is crucial for proper tax compliance. Here’s an in-depth look at the various income sources for insurance agents:
1. Commission Income
Primary Source of Income:
- Policy Sales: The most significant portion of an insurance agent’s income comes from the commissions earned on selling insurance policies. This commission is a percentage of the premium paid by the policyholders.
- Renewal Commissions: Agents also earn commissions on the renewal of existing policies, providing a steady income stream as long as the policyholder continues to renew.
Reporting:
- Commissions should be reported under ‘Income from Business or Profession’ or ‘Income from other sources’ if it is not primary income source in the ITR form.Â
2. Bonuses and Incentives
Performance-Based Earnings:
- Performance Bonuses: Insurance companies often reward agents with bonuses for achieving certain sales targets or for exemplary performance.
3. Service Fees
Additional Charges:
- Consultation Fees: Agents may charge clients for additional services such as financial planning, consultancy, and advice on choosing the right insurance products.
- Processing Fees: Some agents charge fees for handling paperwork and processing insurance claims on behalf of clients.
Reporting:
- Service fees are reported under ‘Income from Business or Profession.’Â
4. Referral Income
Earnings from Referrals:
- Referral Commissions: Agents might earn additional income by referring clients to other financial products or services provided by third parties, such as mutual funds, loans, or other insurance policies.
Reporting:
- Referral income should be included in the total business income.
How to calculate taxable income?
Insurance agents are not eligible for the presumptive taxation scheme and must pay taxes according to the normal slab rates based on their income bracket. They can claim deductions for expenses incurred, provided they maintain proper records. Without detailed records, LIC agents can claim an ad hoc deduction if their gross commission income is up to Rs. 60,000, subject to a maximum deduction of Rs. 20,000.
Ad Hoc Deduction for LIC Agents:
- First-Year Commission: 50% deduction
- Renewal Commission: 15% deduction
- If Separate Figures Are Not Available: One-third of the gross commission
Example Calculation:
- First-Year Commission: Rs. 30,000 (50% = Rs. 15,000 deduction)
- Renewal Commission: Rs. 10,000 (15% = Rs. 1,500 deduction)
- Combined Commission (without separate figures): Rs. 15,000 (one-third = Rs. 5,000 deduction)
- Total Deduction: Rs. 21,500, but capped at Rs. 20,000
Insurance Agents can use the Income Tax Department’s Agent Commission Calculator tool to compute their income accurately. Proper documentation of expenses allows for actual expense claims instead of ad hoc deductions.
TDS on Commission for Insurance Agents
Tax Deducted at Source (TDS):
- Insurance agents receive their commission after the deduction of TDS as per Section 194D of the Income Tax Act. This deducted amount is reflected in the insurance agent’s Form 26AS.
Entities Responsible for TDS Deduction:
- Entities must deduct TDS when paying commissions to resident insurance agents for:
- Soliciting or procuring insurance business.
- Renewing, reviving, or continuing insurance policies.
Exemptions from TDS Deduction:
- TDS is not required if:
- The commission paid does not exceed Rs. 15,000.
- The agent submits Form 15G/15H declaring that their total income is below the taxable limit or the basic exemption limit of Rs. 2,50,000 if under 60 years of age.
TDS Rates:
- For Individuals: 5%
- For Companies: 10%
Additional Notes:
- Special Note: From May 14, 2020, to March 31, 2021, the rates were temporarily reduced to 3.75% and 7.5%, respectively.
- If No PAN submitted: 20% TDS applicable
- Non-Filers of ITR: If TDS exceeds Rs. 50,000 in the last two years and the agent hasn’t filed ITRs, the rate is 2 times the specified rate or 5%, whichever is higher.
Which ITR form to be selected?
Insurance agents must file ITR-3, not ITR-4, as they do not qualify for the presumptive taxation scheme. The ITR-3 form requires the following details:
- General Information: Personal and business details.
- Computation of Income: Income calculation as per the Income Tax Act.
- Balance Sheet: Financial position at the end of the year.
- Profit or Loss Statement: Financial performance for the relevant financial year.
In case Commission is a secondary source of income then such income should be reported under ‘Income from other sources’. The ITR form applicable will be based on the type of other income sources like salary, business, capital gains and rent.
Income tax slab for Insurance agent below 60 years (Old Regime)
| Income | Tax rates |
| Less than Rs.2,50,000 | 0% |
| Rs.2,50,000 – Rs.5,00,000 | 5% |
| Rs.5,00,001 – Rs.10,00,000 | 20% |
| More than Rs.10,00,000 | 30% |
You Can claim deduction under Section 80C, 80D, 80G, etc
In Old tax regime, a maximum tax rebate of Rs. 12,500 is available for income upto Rs. 5 lakhs meaning your income is totally tax free till Rs. 5 lakhs.
Income tax slab for Insurance agent below 60 years (New Regime)
| Income | Tax rates |
| Less than Rs.3,00,000 | 0% |
| Rs.3,00,001 – Rs.6,00,000 | 5% |
| Rs.6,00,001 – Rs.9,00,000 | 10% |
| Rs.900,001 – Rs.12,00,000 | 15% |
| Rs.12,00,001 – Rs.15,00,000 | 20% |
| More than Rs.15,00,000 | 30% |
You cannot claim any deduction under Section 80C, 80D, 80G, etc
In New tax regime, a maximum tax rebate of Rs. 25,000 is available for income upto Rs. 7 lakhs meaning your income is totally tax free till Rs. 7 lakhs.
Income tax slab for Insurance agent between 60 & 80 years (Old Regime)
| Income | Tax rates |
| Less than Rs.3,00,000 | 0% |
| Rs.3,00,001 – Rs.5,00,000 | 5% |
| Rs.5,00,001 – Rs.10,00,000 | 20% |
| More than Rs.10,00,000 | 30% |
Income tax slab for Insurance agent above 80 years (Old Regime)
| Income | Tax rates |
| Less than Rs.5,00,000 | 0% |
| Rs.5,00,001 – Rs.10,00,000 | 20% |
| More than Rs.10,00,000 | 30% |
How to file Income tax return for Insurance agent?
Gather Documents: Collect all your financial documents such as Form 16 (if applicable), income from insurance commissions, bank statements, TDS certificates, 26AS, AIS, etc.
Choose the Correct Form: As an insurance agent, you’ll likely use ITR-3 form, depending on the nature of your income and whether you have any business income.
Provide Details: Fill out the necessary details in the chosen ITR form, including personal information, income details, tax payments, and deductions.
Claim Deductions: Ensure you claim all the deductions you are eligible for like PPF, ELSS, Life insurance premium, donations, etc
Tax Calculation and Payment: Calculate your tax liability based on the applicable tax slab and deductions claimed. If there is any tax payable, pay it using the designated methods.
Submit and Verify: After Submitting the form, verify it using any of the available methods (Aadhaar OTP, EVC, or sending a physical copy within 30 days).Â
Acknowledgment: Once your return is successfully verified, you’ll receive an acknowledgment (ITR-V).
Keep Records: Keep copies of all filed returns, acknowledgment receipts, and supporting documents for future reference.
Seek Professional Help if Needed: If you find the process complex or have specific queries, consider consulting a CA who can guide you through the process and ensure accurate ITR filing.
What is the Due date of ITR filing for Insurance agent?
The Due date to file Income tax return is 31st July.
In case you have missed this deadline then you can file belated ITR till 31st December with late fees.
Also for any mistake made while filing ITR before 31st July, you can make corrections by filing Revised ITR any number of times till 31st December.
If you miss deadline of Belated income tax return filing then you can file Updated ITR till 2 years from the end of relevant assessment year with late fees and additional taxes.
What are the Consequences of non-payment of Tax and non-filing of ITR?
Failing to pay taxes and file your Income Tax Return (ITR) has severe consequences. Firstly, unreported income is deemed illegal, equating to tax evasion, and can result in a penalty of 100% to 300% of the evaded tax under Section 271(C). Secondly, a penalty ranging from 10% to 90% of the undisclosed amount may be imposed under Section 271AAB, depending on the circumstances. Lastly, if you miss the filing deadline, a 1% interest per month or part thereof will be charged on the unpaid tax amount as per Section 234A.
Conclusion
Filing income tax returns (ITR) as an insurance agent involves gathering relevant financial documents, choosing the correct ITR form (ITR-3), accurately calculating income from commissions and other sources, and claiming eligible deductions. The process includes online filing, tax calculation, payment, submission and verification. Seeking professional assistance is advisable for complex situations. Keep records of filed returns and acknowledgments for future reference.Â
In case you still have any query or want to file ITR with CA assisstance then you can contact us at +91 9769647582
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