Income Tax Return Filing 2019: Things to consider by life insurance agents while filing ITR

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Filing of ITR: Selecting the right ITR Form based on one’s income sources is an important step before filing the returns.

Income Tax Return 2019-20: The last date for filing the income tax return (ITR) for the assessment year 2019-20 is August 31, 2019. Selecting the right ITR Form based on one’s income sources is an important step before filing the returns. For the life insurance agents earning commissions by selling life insurance policies, it is important that they choose the right ITR form and avail income tax deductions available to them under the Income Tax Act, 1961. Here are a few things to consider by life insurance agents while filing their ITR.

It is important to note that the total commission earnings are not subject to tax as there are certain provisions in the I-T act to help one reduce taxable income. “As per circular no. 648 of 1993, the CBDT has provided the benefit of ad-hoc deduction to insurance agents of the Life Insurance Corporation (LIC) having a 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. According to this mechanism, the deduction allowable shall be 50% of first-year commission and 15% of the renewal commission respectively, where separate figures of first year and renewal commission are available. However, where separate figures are not available 33.33 per cent of the gross commission shall be allowable. In both, the above cases, the ad hoc deduction will be subject to a ceiling limit of Rs. 20,000,” says Dr Suresh Surana, Founder, RSM Astute Consulting Group.

While the deduction is available only when the earnings are below Rs 60,000 in a year. “Where life insurance commission earned is in excess of Rs. 60,000 the ad hoc deduction shall not be available and income may be in the nature of “Income from Business / Profession“ or “Income from Other Sources”, as the case may be,” says Dr. Surana.

How is commission income taxed?

Insurance commission earnings will fall under which head of income will be based on the nature of such earnings. “Commission income falls under the residuary head of income i.e. Income from Other Sources (IFOS). However, if a person is engaged in the commission business, then the income from commission business shall be offered to tax under the head “Income from business and profession” and not under IFOS,” says Dr. Surana.
The commission received from the insurer is after the deduction of TDS. Therefore, before filing, make sure you have accessed your Form 26AS to match the TDS amount. “Insurance agents shall reconcile their income with that getting reflected under 26AS so as to estimate the exact amount of commission income on which TDS has been deducted and include the same while filing ITR,” says Dr. Surana.

Which ITR form for insurance agents?

Some of you could be earning commissions on an individual basis while some others may have formed a company dealing in the business of selling life insurance policies. “If a person is engaged in the commission business, then he/ she will be required to file ITR-3. In the case of a company engaged in the commission business, ITR-6 is required to be filed. If a person is earning commission income which is incidental in nature and is not engaged in the commission agency business, then such income shall be offered under the head “Income from other sources”. If the individual has income from any other source such as business or salary or interest income, they too have been to be accounted for. Here, the selection of the right form becomes important or else the return of income may become defective. “In such case, if an individual is earning only from the commission and his total income does not exceed Rs 50 Lakh can use ITR-1 to file the return. But, if his total income exceeds Rs.50 Lakhs then he will be required to use ITR-2 provided he doesn’t have any income from business and profession”, says Dr. Surana.

Is maintaining the books of account compulsory

Agency business that has earnings in the form of commissions is not subject to Presumptive tax scheme and hence the life insurance agent cannot take its advantage. “Presumptive tax scheme has been introduced under the Income Tax Act, 1961 (IT Act) wherein assesses can offer income to tax at a prescribed rate of the gross turnover. Additionally, assesses offering income under this scheme are not required to maintain books of account. However, agency businesses are specifically excluded from this scheme. Hence insurance agents cannot offer their income to tax under the presumptive tax scheme and accordingly, shall also be required to maintain books of accounts,” says Dr. Surana.