For an ordinary resident recipient other than a company, insurance commission covered by section 393(1), Table serial 1(i), carries a 2% rate under Part II, paragraph 1(a)(v), of the Finance Act, 2026 First Schedule. Apply the ₹20,000 threshold and the other statutory conditions. Do not mechanically reuse the old 5% figure or confuse commission with a life-insurance policy payout. The controlling sources are section 393 and the enacted Finance Act, 2026, First Schedule Part II.
The annual Finance Act supplies the rate
Section 393’s insurance-commission entry says rates in force, rather than printing a fixed percentage. The Finance Act received assent on 30 March 2026; sections 2–129 generally commence on 1 April 2026. Section 3(7) and First Schedule Part II therefore belong in the tax-year 2026–27 working. This guide covers 1 April 2026 to 31 March 2027 and resident non-company recipients. It does not prescribe the rate for domestic companies or non-residents.
The Department’s informational TDS rate page, checked on 25 October 2026, still displays 5% against the non-company insurance-commission entry despite describing tax year 2026–27. Its own disclaimer directs readers to Acts and notifications. The enacted Schedule expressly prints 2%. Preserve that Schedule and the applicable section with the rate-master change; a portal label or summary does not amend an Act. Investigate and document any operational mismatch rather than silently retaining an unsupported percentage.
Classify the payment and aggregate it correctly
The entry covers remuneration or reward, by commission or otherwise, for soliciting or procuring insurance business, including continuance, renewal or revival. An insurer’s maturity payment to a policyholder is a different statutory entry. General brokerage is also separately described. Use the underlying activity and contract, not merely a ledger called commission.
Under section 393(1), deduction is on the entire covered income or sum once the amount or aggregate exceeds the specified threshold; it is not only on the excess over ₹20,000. Credit or payment, whichever occurs earlier, is the ordinary trigger. Subsection (11) prevents use of a suspense-account label to evade the credit rule. Maintain the annual payee total and credit-versus-payment dates together, without deducting twice when an already-taxed credit is later settled.
The illustrations assume valid PAN, ordinary resident non-company status, no applicable non-deduction declaration or special certificate, and that the stated amount is the correctly established deduction base. GST components, reimbursement characterisation and unusual net-of-tax contracts require separate examination; the examples do not invent a universal invoice-base rule. Section 3(17)(i) of the Finance Act excludes the relevant resident withholding cases from its cess uplift. TDS is a credit against final tax, not the agent’s final income-tax rate.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Single covered commission
A resident individual is credited ₹1,50,000 in the stated tax year. TDS is ₹1,50,000 × 2% = ₹3,000; subsequent cash settlement after this deduction is ₹1,47,000. A 5% deduction would be ₹7,500, exceeding this ordinary working by ₹4,500.
Illustrative example 2: Below the annual threshold
The only covered commission for the payer/payee in the tax year is ₹18,000. It is ₹2,000 below the ₹20,000 threshold, so deduction under this entry is ₹0. The receipt’s final taxability is a separate issue.
Illustrative example 3: Exactly the current threshold
The annual aggregate is exactly ₹20,000. Section 393(1)(a) uses exceeds the threshold; on the stated ordinary facts, this entry therefore yields no deduction. At an aggregate of ₹20,500, the whole base produces ₹410, not ₹10 on the ₹500 excess alone.
Illustrative example 4: Crossing through two credits
Credits are ₹12,000 and ₹15,000 to the same resident agent. Aggregate commission is ₹27,000 and ordinary cumulative TDS is ₹540. If nothing was deducted from the first credit, adjusting the full ₹540 against the second settlement leaves ₹14,460, assuming the payer’s adjustment and payment trail support that treatment.
Illustrative example 5: Later payment is not a second trigger
A ₹80,000 commission credit on 15 September 2026 carries ₹1,600 TDS. Payment on 10 October settles ₹78,400 after that withholding. Do not deduct a further ₹1,600 simply because the payment date differs from the already-taxed credit date.
Illustrative example 6: Renewal and new-business rewards
Supported covered rewards are ₹40,000 for new business and ₹25,000 for renewals, with no earlier deductions. Total covered income is ₹65,000; TDS at 2% is ₹1,300 and net settlement ₹63,700. Splitting the reward labels does not create two fresh annual thresholds.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the tax year | Dates confirming tax year 2026–27 rather than a legacy-period deduction. |
| 2 | Confirm payee scope | Residence, legal form and PAN evidence for the non-company working. |
| 3 | Read the enacted rate | Finance Act First Schedule Part II, paragraph 1(a)(v). |
| 4 | Classify the activity | Solicitation, procurement, renewal or revival contract and reward terms. |
| 5 | Establish the correct base | Invoice and contract review, including separately analysed tax components. |
| 6 | Aggregate annual credits and payments | Payee ledger with duplicate settlements removed. |
| 7 | Test the threshold | Exceeds-₹20,000 comparison on the supported annual aggregate. |
| 8 | Check exceptions | Declarations, certificates and special-rate consequences reviewed separately. |
| 9 | Reconcile timing and deduction | Earlier credit/payment date, suspense-account check and cumulative calculation. |
| 10 | Close the credit trail | Deduction statement, certificate, remittance and payee reconciliation. |
Sixteen practitioner FAQs
1. Why is section 194D not the main citation?
This article concerns the 2025 Act’s tax year 2026–27; use section 393’s relevant entry instead of carrying forward a legacy label.
2. Where does 2% appear?
Finance Act, 2026, First Schedule Part II, paragraph 1(a)(v), for a resident person other than a company.
3. Does section 393 itself print that percentage?
Its insurance-commission row says rates in force, so the annual Finance Act must also be read.
4. Why not use the informational 5% table?
The enacted Schedule controls. The checked summary page’s disclaimer also directs readers to the law.
5. Does the 2% answer cover domestic companies?
No. Company recipients require their own Part II rate analysis.
6. Does it cover non-resident agents?
No. The resident entry and this working cannot be extended automatically to a non-resident.
7. Are renewal rewards included?
Yes, the statutory description includes continuance, renewal and revival of insurance policies.
8. Is policy maturity income insurance commission?
No. The payout entry concerns a different payment and deduction base.
9. Is only the excess over ₹20,000 taxed at source?
No. Once the current threshold is exceeded, the ordinary rule applies to the whole covered base.
10. What happens at exactly ₹20,000?
The general current provision requires the aggregate to exceed the threshold on the stated facts.
11. Can the threshold restart with each invoice?
No. Track the tax-year aggregate for the payer and payee.
12. When does deduction ordinarily arise?
At credit or payment, whichever is earlier, under section 393(1).
13. Can suspense posting postpone deduction?
Subsection (11) treats the described suspense-account credit as credit to the payee.
14. Must later cash settlement be taxed twice?
No. Reconcile the original taxed credit before making the settlement entry.
15. Are the examples final income-tax computations?
No. They calculate ordinary withholding; final taxable income and credits need a separate return computation.
16. What should support a rate-master correction?
The enacted provision, applicable period, payee classification, dated change approval and reconciliation of affected deductions.
Conclusion
For resident non-company insurance commission in tax year 2026–27, reconcile the enacted 2% rate, ₹20,000 annual threshold and earlier-of-credit-or-payment trigger.