Businesses

One of the common questions that we get is which ITR do I need to File If I receive only commission from Insurance Agency and what deductions are available?

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The answer is ITR 3 which is to be used by individuals and HUFs having income from profits and gains of business or profession.

Point to note for commission agents is that if the total commission income during the year is less than 60,000 (and details of expenditure are not maintained) then an ad-hoc deduction is available to such agents which is restricted to maximum of Rs. 20,000.

Income

Commission on First time policy

Renewal commission

Deduction available

50% of commission

15% of commission

If separate figures are not available, then 33 1/3rd % of commission can be claimed as deduction.

No deduction is available for bonus commission which is fully taxable. 

Agents earning more than Rs. 60,000 would need to maintain and claim details of expenditure incurred by them to earn the commission. 

Direct expenditure that can be claimed generally includes travel costs, telephone expenditure, subscription to databases. Supporting documents and bills for such expenditure would need to be maintained.

Two related questions that are relevant are:

    1. Does the deduction apply to only agents of Life Insurance Corporation (LIC)?

       

      Answer – The circular of the Income Tax Department applies only to LIC agents, hence it is debatable if agents of other insurance companies can claim deduction as above.

 


    1. Which return a person earning both salary and commission as insurance agent should file?

       

      Answer – Such person should use ITR 3 where details of both insurance commission and salary would need to be filled in.

Insurance agents are not entitled to benefit of using ITR 4 for taxation of presumptive income. 

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