Commission on Premium Income

[Tarun]

Can some one explain that one of my friend is an agent of Life Insurance. He earned Rs. 75000/- as commission on premium during last year.

Beside that commission he also have income from salary which is Apx. 175000/- Per anum

He got some exemption against the commission earned in FY 2007-08. Please explain that what exemption should he gets on commission earned in FY 2008-09.

[Taxman]

He can claim deduction of expenses on adhoc @ 50% on first year commission or 15% on the renewal insurance commission as per Circular No 648 dated 30.03.93. In case, separate figures of commission for new and renewed policies are not available in that case the claim of expenses can be made at a percentage of 33 1/3 % as given in the said circular. However, the circular is applicable in case the commission is upto 60000/-.

[Tarun]

Dear Taxman

Thanks for your advice.I got the Curcular you have mentioned.

As per Circular No 648 dated 27.02.91 The 50% Adhoc Deducation is not applicable on Insurance commission, Please check it at your end.

As my friend had earned commission on plolicies of Life Insurance.

Please Advice

Regards,
Tarun

[Taxman]

Commission received by LIC agents or other agents of Life Insurance companies ,can claim exemption on the First year commission to the extent of 50% provide the total commsion is with in 60,000/=. In your case the total commission earned is Rs. 75000/= , so that it is not applicable to you. But you can prepare a I / E a/c and show your expenses for earning the commission and the net income can be taken as your Income.

In the above case the commission amount is 75000/- as such the said circular is not applicable and the expenses incurred actually may be claimed out of the commission earned from the insurance business.

[Tarun]

Please advice that if account of commission received is maintain in proper
way as required in the said circular, what will be the exemption.

Thanks again

[Taxman]

The requirement for maintenance of books as per section 44AA is not required in case receipt is less than 10lac and the income is also less than Rs1.2 lac.

However, the said circular is not applicable In case commission received is
more than Rs 60,000/- . To justify the claim for actual expenses, the
accounts are supposed to be maintained. The expenses can be claimed and
sustantiated from the books of accounts.