Taxation on Life Insurance Commission

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Rajen Pandya (Querist)
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12 July 2010 Hi,

I know that there are different treatment for taxability for both the followings:

1. Commission earned on First policy Year Premiums paid by policy holders
2. Commission earned on renewal commission from second policy year onwards.

Can somebody throw light on exact provisions for taxability of the above? Also, I wanted to have detailed informative text on the same.

Thanks,
Rajen

Aditya Maheshwari

Aditya Maheshwari (Expert)
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12 July 2010 There is a circular for the same if total commission does not exceed Rs. 60,000/- inclusive of 1 & 2.

Ad hoc deduction to insurance agents - The benefit of ad hoc deduction to Insurance agents of the Life Insurance Corporation having total commission (including first year commission, renewal commission and bonus commission) of less than Rs. 60,000 for the year, and not maintaining detailed accounts for the expenses incurred by them, may be allowed as follows :

(i) where separate figures of first year and renewal commission are available, 50 per cent of first year commission and 15 per cent of the renewal commission;

(ii) where separate figures as above are not available, 331/3 per cent of the gross commission.

In both the above cases, the ad hoc deduction will be subject to a ceiling limit of Rs. 20,000.

The “gross commission” in (ii) above will include first year as well as renewal commission but will exclude bonus commission.

The complete amount of bonus commission is taxable and will be taken into account for purpose of computing the total income, and no ad hoc deduction will be allowed from this amount.

The benefit of ad hoc deduction will not be available to agents who have earned total commission of more than Rs. 60,000 during the year. The admissibility of the expenditure claimed by such agents will be decided by the Assessing Officers as per the provisions of the Income-tax Act.

This will apply to assessment year 1993-94 and subsequent years—Circular : No. 648, dated 30-3-1993.

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