TDS Under Section 194DA on Life Insurance Proceeds
As per section 194DA of the Income Tax Act of 1961, life insurance companies shall now deduct TDS, if the amount paid on your life insurance policy, including bonus, exceeds Rs. 1 lakh in a financial year.
The section states that ‘the person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, (except life insurance policies which are exempted under section 10(10D)) shall deduct TDS, if the amount paid during the financial year exceeds Rs.1 lakh’.
TDS will not be applicable in case of death claim payouts.
TDS U/s 194DA is applicable to:
- The policies where the sum assured is less than 5 times of the premium paid for policies issued on or before 31st March 2012 or where the sum assured is less than 10 times of the premium paid for policies issued on or after 1st April 2012.
- All policy related payouts such as Partial Withdrawal, Surrender, Maturity, etc, if the payout is above Rs.100,000 within the same financial year.
TDS rate will be applicable as per the prevailing tax laws.
Customer will be given a TDS certificate of tax deducted.
If the policy payout is taxable and the person (non corporate) is non-resident, then effective rate of TDS under section 195 of Income Tax Act will be applicable.