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TDS-on-Insurance-Policy-Payments-under-Section-194DA

 

TDS on Insurance Policy Payments under Section 194DA

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Introduction-

TDS on Insurance Policy Payments under Section 194DA, Inserted on 01.10.2014 according to the new section tax will be deducted at source (TDS) at below rates on payouts to Indian Resident, if the cumulative payout across all policies which are not exempted under section 10(10D) equals or exceeds Rs. 1 lakh in a financial year.

Tax is not required to be deducted at source if the amount of proceeds are less than Rs. 1,00,000/- or if the proceeds of life insurance policy are taxable then TDS provisions are applicable.

  • In case your life insurance policy qualifies for Sec 10(10D), no TDS will be deducted
  • In case the sum is received against the death of a person, the entire amount will be exempted.
  • In case of having PAN or is valid, TDS will be deducted @ 1% w.e.f. 01.06.2016 (earlier it was 2%).
  • In case not having PAN or is invalid or not available, 20% TDS will be applicable!

 

Exemptions u/s 10 [10(D)]

As per sec 10 [10(D)] of the Income Tax Act any income received from the insurance policy is exempted whether received from Indian or a Foreign Company. However, this section has following exceptions to it:

  1. Any sum received under section 80DD and 80DDA (3).
  2. Any sum received under a Keyman Insurance Policy.
  3. If Policy is bought after 1st April 2003 but before 1st April 2012: the premium paid is 20% more than the sum insured.
  4. If Policy is bought after 1st April 2012: the premium paid is 10% more than the sum insured.
  5. Life insurance policy bought for disabled or those suffering from ailments in section 80DDB after 1st April 2013 if premiums are more than 15% of sum assured.

There is no maximum limit for claiming the exemption under Sec 10 [10(D)] unless the above-mentioned conditions are not fulfilled.

 

 
Example 1- (Section 194DA is applicable)
Mr. Ram has taken an insurance policy in May, 2012 for Rs. 5,00,000/-. He paid premium of Rs. 1,00,000/-  per annum.  After 5 years i.e. on maturity he received Rs. 6,00,000/- (including bonus). State whether TDS provisions under section 194DA is applicable or not?

Answer-

Policy has taken after 1st April, 2012, the amount of deduction allowed on premium should not exceed 10% of the sum assured. As in the above case, the sum assured was Rs. 5,00,000/- and the amount of premium should not exceed 10% (i.e. Rs. 50,000/-). Actual premium paid (Rs. 1,00,000/-) is more than ceiling limit (Rs. 50,000/-). Hence, the maturity amount is taxable.

As per Section 194DA, since the proceeds are more than Rs. 1,00,000/- TDS provisions are applicable. Hence the insurance company will deduct TDS @ 1% of Rs. 5,00,000/- i.e. Rs. 5,000/- while making the payment of the maturity proceeds.

 
Example 2-
Mr. Ram has received Rs.1 ,00,000/- as maturity amount on his life insurance policy. State whether TDS provisions under section 194DA is applicable or not?

Answer-

Tax is not required to be deducted on maturity amount if the maturity amount is less than Rs. 1,00,000/-. In this case, proceeds are Rs. 1,00,000/- hence TDS at 1% i.e. Rs. 1,000/- will be deducted under section 194DA.

   

Premium paid towards a life insurance cover taken on life of your family which includes you, your spouse or your child (child may be dependent or not, minor or major, married or unmarried), such amount of premium paid is eligible for deduction under section 80C.

Premium paid towards a life cover taken with any insurer that is approved by the Insurance Regulatory and Development Authority of India (IRDAI), is eligible for a Section 80-C deduction.

However, to claim deduction under section 80C-

  • Policy taken after 01st April 2012- The premium paid should not exceed 10% of the sum assured
  • Prior to 1 April 2012- The premium paid should not exceed 20% of the sum assured.
  • Policy issued after 1 April 2013, covering the life of an individual with a disability referred to under Section 80U or a disease referred to under Section 80DDB, the requirement to claim the deduction under Section 80C is that the premium should not exceed 15% of the sum assured.
Example 3-
Mr. Ram takes a life insurance policy in March 2017 having a sum assured of Rs. 5,00,000. He paid a premium of Rs, 1,00,000 in March 2017. Whether the deduction is allowed for full amount of premium paid?

Answer-

The amount of deduction would be restricted to 10% of sum assured i.e. Rs. 50,000 (10% of Rs. 5,00,000).  Hence, out of Rs. 1,00,000 premium paid by him, he would be eligible for deduction for only Rs. 50,000 & balance Rs. 50,000 is not eligible for deduction.

 

Disclosure in Income tax return-

The maturity proceeds received by you are exempt under Section 10(10D) and should be shown under exempted income in your income tax return.

 



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