‘No TDS on interest on insurance claims’

The Bombay High Court has ruled that an insurance company can’t deduct tax at source (TDS) on interest paid on compensation, while settling claims.

The Bombay High Court has ruled that an insurance company can’t deduct tax at source (TDS) on interest paid on compensation, while settling claims.

HT Image

The HC on Thursday restrained the New India Assurance Company from deducting TDS on interest to be paid on compensation to a widow, her two minor children and widow’s mother-in-law.

A division bench of Justice S.A. Bobade and Justice S.J. Kathawala was hearing a petition filed by Rohini Gupta (name changed), her two children, aged 10 and 8 and her mother-in-law.

The family approached the high court after New India Assurance Company proposed to deduct TDS while settling insurance claims for Gupta’s husband, who died in April 2001.

The insurance company asked Gupta to provide her PAN card details so that they could deduct TDS on the interest amount.
The judges observed in their order, “We see no reason why the amount that is to be withdrawn by the applicants should not be taken as year to year income. Accordingly, we direct the company that the amount (of compensation) shall be deposited without deduction of tax at source.”

M B Kotak, Gupta’s advocate, argued that Gupta’s annual income did not exceed Rs 50,000 and the two children were minors.

The compensation due to the children will remain with the tribunal till they become major. Since there are four claimants,
if the interest is divided between all four of them, annual income will not exceed Rs 50,000, argued Kotak.

Citing the central government’s rules, Kotak said: “As per the rules, TDS can be deducted by the insurance company only if the interest on income exceeds Rs 50,000.”

Bhakti Barve, advocate for the insurance company, argued that the company was following the Central Government’s Rules. “To not deduct TDS on the interest amount, the insurance company would require specific orders from the court,” Barve said.

Accordingly, the judges passed the order restraining the insurance company from deducting TDS on interest on compensation amount.