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Section 194DA – TDS Deductions on Insurance Policies

Last Update Date : May 07, 2018

section 194DA

There are a lot of benefits attached to taking insurance coverage, right from securing one’s life to the tax benefits one can claim under the Income tax act. Before the introduction of sec 194DA, any income received from the insurance policy at the time of maturity was tax-free in the hands of insurer. The new section states that TDS will be deducted by the insurance companies on the maturity of the Life Insurance Policy not compliant with sec 10[10(D)] . Read this guide learn more about the provisions about section 194DA.

What is Section 194DA?

Section 194DA, was inserted in the act on 1st October 2014 and is applicable on policy payments that are not exempted under the Sec 10 [10(D)]. As per the new section Insurance companies will deduct TDS while making the payments on such claims if the amount received is more than one lakh rupees.

  • 2% TDS – If PAN is valid and available
  • 20% TDS – If PAN is NOT valid and available
  • No TDS – If the Life Insurance Policy qualifies u/s 10 [10(D)]

In case the sum is received against the death of a person, the entire amount will be exempted.

Amendments: TDS rate has been reduced from 2% to 1%, effective from 1st June 2016.

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 31st 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.  Also, the above exceptions are not applicable on death claims or any amount received on the death of the insured.

An Example of TDS Deduction on Insurance Policy

Mr. John paid a premium of Rs. 1 Lakh on the life insurance policy and the value of investment on maturity is Rs. 1,50,000. Mr. John falls under the 10% tax slab. The calculation of TDS @ 2% on the amount received on maturity is shown below:

Calculation of TDS on Life Insurance Policy u/s 194DA

    Calculation of TDS on Life Insurance Policy u/s 194DA  
Total Premium Paid 1,00,000
Value of the Investment at Maturity 1,50,000
Total Income Earned during the year (Including income from LIC and other sources) 70,000
Total Tax payable during the AY (70,000 x 10%) 7,000
TDS @ 2% (deducted on the maturity proceeds) by the Insurance Company 3,000
Balance Tax payable by the Assessee (7,000-3,000) 4,000

To ensure you avail of all the tax saving options available to you for maximum tax planning, consult the experts at H&R Block India.

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