Why is TDS not deducted on stock insurance premiums and vehicle insurance premiums paid by a company?

[Ramanathan Seshan]

Dear Experts,

I was going through some company expenses and noticed that no TDS is deducted on payments made towards stock insurance and vehicle insurance premiums. Can someone clarify the reason behind this? Is there a specific exemption under the Income Tax Act or any relevant rule that applies here?

Regards,

S Ram

AI Summary

Insurance premium payments exempt from TDS under Income Tax Act as statutory indemnity contracts not service agreements A company employee inquired about the absence of TDS deduction on stock insurance and vehicle insurance premiums paid by companies. An expert explained that under the Income Tax Act 1961, insurance premium payments are exempt from TDS requirements. These payments do not qualify as professional services under Section 194J or contractual payments under Section 194C, as they represent statutory indemnity contracts governed by the Insurance Act rather than service contracts. CBDT Circular No. 715 dated 08-08-1995 specifically clarifies that TDS is not applicable on insurance premium payments to insurance companies. Courts have consistently held that premium payments do not contain embedded income elements that would trigger TDS obligations. The insurance company remains liable for tax on income derived from premiums, while the payer has no withholding obligations for such transactions.