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Dhanu Bhal's Tax Success Agent's Income Tax Returns

About the case

Meet Mr. Dhanu Bhal, a resident navigating the complexities of filing income tax returns while earning commissions as an insurance agent. Seeking clarity, he turned to TaxBuddy, guided by a friend's recommendation. The intuitive interface and straightforward navigation not only alleviated his concerns but also provided insights into choosing the right ITR form and reporting insurance commission income. Dhanu Bhal aimed to harmonize his financial goals with the intricacies of tax regulations.

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Issues faced By

Mr. Dhanu Bhal

Identifying the Appropriate ITR Form

  • Mr. Dhanu Bhal encountered a challenge in determining the right Income Tax Return (ITR) form. The confusion stemmed from his uncertainty about the applicability of the presumptive scheme of taxation. He sought clarity on whether this scheme was relevant to his specific circumstances.


TDS Deduction Queries

  • Mr. Dhanu Bhal encountered uncertainties related to Tax Deducted at Source (TDS) Firstly, he sought clarification on the entity responsible for deducting TDS from his income. Additionally, he expressed doubts about the specific conditions under which TDS need not be deducted from his earnings. Lastly, Mr. Bhal was unclear about the applicable rate at which TDS would be deducted, contributing to his overall concerns regarding TDS deductions.


TDS Exemption

  • Mr. Dhanu Bhal was unsure about when TDS (Tax Deducted at Source) is not required. In simpler terms, he had questions about situations where they don't have to deduct tax directly from his income. Clearing up when TDS exemptions apply is important for him to follow tax rules correctly and prevent unnecessary deductions.


Claiming Expenses

  • Another concern for Mr. Dhanu Bhal revolved around whether he could claim certain expenses. He was eager to understand if he could offset some costs against his commission income while filing his income tax return. Knowing the rules about claiming expenses is crucial for him to maximize deductions and manage his tax liability effectively.


Calculating Taxable Income

  • In addition to other concerns, Mr. Dhanu Bhal sought clarity on how his taxable income, particularly as an insurance agent, would be calculated. Understanding the method of tax calculation and being aware of any applicable exemptions is pivotal for him to ensure compliance with tax regulations and optimize his financial planning.

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How TaxBuddy Helped

Filing Income Tax Returns

  • Regarding the appropriate Income Tax Return (ITR) form, it was advised that, given the commission-based income, Mr. Dhanu Bhal should file ITR 3 instead of ITR 4. Unlike some other businesses, insurance agents are ineligible for the presumptive taxation scheme under section 44AD. The prescribed approach to determine tax liability involves applying the relevant tax rates to the total taxable income for the relevant financial year when the income is calculated.


Tax Deduction at Source (TDS)

  • In the context of Tax Deduction at Source (TDS), Section 194D mandates entities to deduct TDS when disbursing commission to a resident of India, provided it is a form of reward or remuneration, either through commission or related to petitioning or obtaining insurance business, or the renewal, revival, or continuation of policies.


Exemptions and TDS Rates

Entities are not obligated to deduct TDS in the following scenarios:

  • If the commission payment is less than Rs. 15,000.

  • When the agent submits Form 15G or Form 15H, declaring that the calculated tax on their total income is nil or their total income is below Rs. 250,000, considering the basic exemption limit for individuals under 60 years of age.




Note:

  • Rates were 3.75% and 7.5% from May 14, 2020, to March 31, 2021.

  • No surcharge or cess is applied to the mentioned rates.

  • If the agent lacks a PAN, the rate is 20%.

  • If TDS exceeds Rs. 50,000 in the last two years, and the agent hasn't filed an ITR, the TDS rate  is doubled or 5%, whichever is higher.


Claiming Expenses:

  • Yes, individuals, including insurance agents earning commission income, have the provision to claim certain expenses while filing their income tax returns. This allows them to offset some of their incurred expenses against their commission income, potentially reducing their taxable income.


Understanding Income Tax for Insurance Agents

  • Dhanu Bhal, a resident who worked under a private company for 11 months in the financial year 2020-21, faced questions about filing income tax returns. His monthly salary was Rs 40,000, and he earned Rs 30,000 as LIC commission and Rs. 10,000 as a renewal commission. Additionally, he incurred Rs. 1,250 in telephone expenses. He also made investments under 80C, totaling up to Rs 1,50,000.

  • If the commission earned is less than Rs 60,000, the deduction on the 1st-year commission is 50%, and for renewal commission, the deduction available is 15%, with a maximum limit of Rs 20,000.



Note: Other expenses are not allowed to be deducted from his commission income. In cases where individual figures are not available, 33 ⅓% of the gross commission will be allowed as a deduction.

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The Conclusion: 

Mr. Dhanu Bhal

Tax saving Journey

Mr. Dhanu Bhal found valuable assistance from Taxbuddy as he navigated the intricacies of filing Income Tax Returns. Taxbuddy played a crucial role in ensuring compliance with various regulatory frameworks, providing comprehensive support in understanding implications related to insurance commission and other taxation aspects.


Benefiting from Taxbuddy's expertise, Mr. Dhanu Bhal not only successfully managed to traverse the complex legal landscape but also received guidance in optimizing his tax liabilities. Taxbuddy's role in this journey was instrumental in aligning Mr. Dhanu Bhal's financial aspirations with the tax regulations in place. TAXBUDDY.COM, the service that aided him, stands as a reliable resource for individuals dealing with tax-related matters in India.

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