TDS On Payment of Life Insurance Policy Section 194DA of Income Tax Act

TDS On Payment of Life Insurance Policy, Section 194DA of Income Tax Act, Section 194DA for FY 2017-18, Sec 194DA of AY 2018-19

TDS On Payment of Life Insurance Policy : Under section 10(10D), any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt subject to fulfillment of conditions specified under the said section.

Consequently, the sum received under a life insurance policy which does not fulfill the conditions specified under section 10(10D) is taxable.

Rate of TDS u/s 194DA : For ensuring a proper mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempt under section 10(10D), section 194DA provides for deduction of tax at the rate of 1% on any sum paid to a resident under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D).

TDS On Payment of Life Insurance Policy
TDS On Payment of Life Insurance Policy

TDS On Payment of Life Insurance Policy Section 194DA

Threshold limit for TDS Deduction : However, tax deduction is required only if the payment or aggregate payment in a financial year to an assessee is Rs. 1,00,000 or more. This is for alleviating the compliance burden on the small tax payers.

Examine the applicability of the provisions for tax deduction at source under section 194DA in the following cases

(i) Mr. X, a resident, is due to receive Rs. 4.50 lakhs on 31.3.2018, towards maturity proceeds of LIC policy taken on 1.4.2015, for which the sum assured is Rs. 4 lakhs and the annual premium is Rs. 1,25,000.

Since the annual premium exceeds 10% of sum assured in respect of a policy taken after 31.3.2012, the maturity proceeds of ` 4.50 lakhs are not exempt under section 10(10D) in the hands of Mr. X. Therefore, tax is required to be deducted@1% under section 194DA on the maturity proceeds of ` 4.50 lakhs payable to Mr. X.

(ii) Mr. Y, a resident, is due to receive Rs. 2.75 lakhs on 31.3.2018 on LIC policy taken on 31.3.2012, for which the sum assured is Rs. 2.50 lakhs and the annual premium is Rs. 35,000.

Since the annual premium is less than 20% of sum assured in respect of a policy taken before 1.4.2012, the sum of Rs. 2.75 lakhs due to Mr. Y would be exempt under section 10(10D) in his hands. Hence, no tax is required to be deducted at source under section 194DA on such sum payable to Mr. Y.

(iii) Mr. Z, a resident, is due to receive Rs. 95,000 on 1.10.2017 towards maturity proceeds of LIC policy taken on 1.10.2012 for which the sum assured is Rs. 90,000 and the annual premium was Rs. 15,000.

Even though the annual premium exceeds 10% of sum assured in respect of a policy taken after 31.3.2012, and consequently, the maturity proceeds of Rs. 95,000 would not be exempt under section 10(10D) in the hands of Mr. Z, the tax deduction provisions under section 194DA are not attracted since the maturity proceeds are less than Rs. 1 lakh.

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