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

[YAGAY andSUN]

Under the Income Tax Act, 1961, the liability to deduct TDS on various payments is governed by the nature of the payment and the specific provisions of Chapter XVII-B. In the case of insurance premiums, such as those paid for stock insurance or vehicle insurance, no TDS is required to be deducted by the assessee-company. This is due to the clear legal position and practical application of relevant TDS sections.

Primarily, Section 194J, which covers professional and technical services, and Section 194C, which relates to contractual payments, are often examined in such cases. However, payment of insurance premium does not fall under the definition of fees for professional services or a contractual payment to the insurance company for carrying out a work contract. It is a statutory or commercial contract of indemnity governed by the Insurance Act, and not a service contract.

Further, CBDT Circular No. 715 dated 08-08-1995 (FAQ No. 12) clarifies that TDS is not applicable on insurance premium payments made to insurance companies, since these are not in the nature of payments for professional services or work contract. Similarly, courts have also held that mere payment of premium to an insurer does not trigger TDS obligations, as there is no element of income embedded in such payments to attract the provisions of TDS.

Therefore, insurance premium paid towards stock insurance, vehicle insurance, or other general insurance policies is not subject to TDS under the Income Tax Act. The insurance company is liable to pay tax on its income arising from such premiums, and the payer has no withholding obligation on such transactions. Hence, the absence of TDS on these payments is legally correct and compliant.

[Manik]

because under Indian tax law, no TDS provision requires tax deduction at source on insurance premiums paid by a company for its own assets, like stock insurance or vehicle insurance. Here’s a breakdown of why that’s the case, based on the Income Tax Act and related interpretations.

AI Summary

Insurance premium payments are not subject to TDS as they are indemnity payments, not fees under Sections 194C/194J Payments of insurance premiums for company assets are not subject to tax deduction at source because they are contractual payments for indemnity, not fees for professional services or consideration for a contract of services that attract TDS provisions. Tax withholding rules apply to specified categories of income under the TDS regime; premiums paid to insurers do not fall within those categories, and insurers themselves are taxable on their profits. Administrative guidance and judicial decisions have consistently treated premium payments as outside the scope of TDS obligations, so no deduction is required.