TDS on Insurance Commission and Life Insurance Policy Payments
Tax deduction at source on insurance commission and specified taxable life-insurance policy payments is governed from 1 April 2026 by Section 393 of the Income-tax Act, 2025. Legacy Sections 194D and 194DA of the Income-tax Act, 1961 continue to govern transactions falling under the earlier Act.
Insurance commission under Section 393
Insurance commission means remuneration or reward, whether described as commission or otherwise, paid for soliciting or procuring insurance business. The concept also covers business connected with the continuance, renewal or revival of insurance policies.
The TDS obligation generally arises at the earlier of credit of the commission to the resident payee or actual payment. The rate applicable to insurance commission must be read with the relevant Section 393 table item and the Finance Act in force for the tax year.
Threshold and rate for Tax Year 2026-27
The monetary threshold carried into the current framework is Rs. 20,000 for insurance commission. For a resident payee other than a company, the applicable TDS rate is 2 percent. Where the payee is a company or another category for which tax is deductible at the rates in force, the applicable Finance Act rate should be checked.
Life insurance policy payments under Section 393(1), Table Serial No. 8(i)
The Income-tax Rules, 2026 identify Section 393(1), Table Serial No. 8(i), for a sum paid under a life insurance policy, including bonus allocated on the policy, other than an amount excluded from total income under the corresponding exemption in Schedule II of the Income-tax Act, 2025.
The TDS is on the income component comprised in the taxable policy payment, not automatically on the entire gross maturity proceeds. For Tax Year 2026-27, the rate is 2 percent and the annual payment threshold remains Rs. 1,00,000.
When life insurance proceeds are not subject to this TDS
The life-policy TDS provision applies only where the payment is not excluded from total income under the applicable life-insurance exemption. Accordingly, an insurer must first determine whether the policy proceeds qualify for exemption under the current Act. If the payment is exempt, this life-policy TDS provision does not apply.
Transition from Sections 194D and 194DA to Section 393
| Transaction | Up to 31 March 2026 | From 1 April 2026 |
|---|---|---|
| Insurance commission | Section 194D, Income-tax Act, 1961 | Relevant resident-payee item under Section 393 of the Income-tax Act, 2025 |
| Taxable payment under life insurance policy | Section 194DA, Income-tax Act, 1961 | Section 393(1), Table Serial No. 8(i) |
| Section reference in current TDS reporting | Old section reference for transactions governed by the 1961 Act | Relevant Section 393 table item |
Legacy Section 194D: insurance commission
Section 194D required a person responsible for paying to a resident remuneration or reward for soliciting or procuring insurance business, including continuance, renewal or revival of policies, to deduct tax at the earlier of credit or payment.
The older text on this page recorded a Rs. 15,000 annual threshold. That figure became outdated: for Financial Year 2025-26 the threshold was increased to Rs. 20,000. The TDS rate for insurance commission paid to a resident other than a company was reduced to 2 percent with effect from 1 April 2025.
Legacy Section 194DA: payment under a life insurance policy
Section 194DA applied where a person paid a resident a sum under a life insurance policy, including bonus, and the amount was not exempt under Section 10(10D) of the Income-tax Act, 1961.
The tax base is the amount of income comprised in the payment. The legacy rate was reduced from 5 percent to 2 percent with effect from 1 October 2024. The annual payment threshold remained Rs. 1,00,000 for Financial Year 2025-26.
Difference between insurance commission and policy payout
| Point | Insurance commission | Life insurance policy payment |
|---|---|---|
| Recipient | Resident earning remuneration or reward for procuring or servicing insurance business | Resident policyholder or other eligible recipient receiving policy proceeds |
| Nature of amount | Commission, remuneration or reward | Taxable sum under a life insurance policy, including applicable bonus |
| TDS timing | Generally earlier of credit or payment | At payment under the applicable provision |
| Current statutory framework | Section 393 | Section 393(1), Table Serial No. 8(i) |
Practical TDS checklist
Identify the payment: distinguish an agent's insurance commission from a policy payout.
Determine the governing Act: use the applicable transition rule for the credit or payment event.
Check exemption: for policy proceeds, determine whether the amount is excluded from total income under the applicable life-insurance exemption.
Apply the correct tax base: taxable policy payouts are subject to TDS on the income component where the provision applies.
Verify the current rate and threshold: use Section 393 together with the Finance Act and Rules applicable to the tax year.
Related Income Tax provisions
Payments to contractors: Section 194C
Interest other than interest on securities: Section 194A
Lottery and horse-race winnings: Sections 194B and 194BB
Non-resident sportsmen and National Savings Scheme payments: Sections 194E and 194EE
Commission, brokerage and immovable property TDS: Sections 194H and 194IA
Rates, thresholds and exemption conditions should be verified for the tax year and the actual payment concerned.