The phrase “ad hoc” refers to a particular situation or a particular purpose. So by ad hoc expenses we refer to the expenses incurred for a particular purpose. But it should be understood that no other expenditures apart from the specified purpose can be clubbed with the expenses.
Ad hoc expenses are generally referred by Insurance Agents , who are not keeping records of expenses incurred by them and whose total commission income is less than Rs.60,000/- per year. The total commission includes the first year commission of new policies, renewal commission of existing policies and bonus commission, if any.
As per Circular : No. 648, dated 30-3-1993 of Income Tax Act, the maximum exemption is Rs.20,000/- per year and is calculated based on the following:
1.50% of first year commission and 15% of renewal commission
- Where, the above bifurcation is not available, 33.33% of each.
- The bonus commission is fully taxable.
Insurance Agents earning more than Rs.60000/- as commission income during a year will have to give details of all the ad hoc expenditures incurred by him and the amount that can be treated as Ad hoc expenses will be determined by the Assessing Officer as per provisions of Income Tax, Act.
Ad hoc expenses can add up over time for anyone. In an insurance setting, it seems important to plan for ad hoc expenses. I still don’t understand the relationship to commission, though.
In a personal setting, for our own personal use, it is best to budget for ad hoc expenses or you could be clubbed with them too!
I think these ad hoc expenses are the ones that kill our financial expenditure expectations, mostly because they are not planned for.