The brief of TDS in Life Insurance

THE  BRIEF OF   TDS  IN LIFE INSURANCE

Dear Friends,

The following is the brief of TDS on Life Insurance policies and relevant circular also attached for your kind information.

Section 194DA: 2% TDS on Life Insurance Policy Maturity Amount includes  Sum Assured and Bonus . Currently, under section 10(10D) any sum received from life insurer is not taxable if the premium paid does not exceed 10% of the sum assured. Taxpayer would be liable only if he has paid premium more than 10% of the sum assured in any financial year. In that case the sum received would be added to his income under the head “Income from Other Sources” and taxed as per the slab. . Changes made in Budget 2014 -- . Since there was no TDS, many taxpayers used to avoid the tax by not disclosing it in ITR. 

To overcome this issue Finance Minister in Budget has proposed to insert a new section 194DA under which TDS of 2% would be deducted by the insurer on the proceeds of life insurance policy (for both unit-linked insurance plans and traditional plans), if the premium paid by assessee exceeds 10% of the sum assured in any financial year. The deduction will be made on the entire amount including any sum allocated by the way of bonus. . However, only the policies maturing on or after October 1, 2014 will come under the purview of this amendment. Also, the TDS will not be attracted if the maturity amount is less than Rs. 1 lakh. 

Policies issued on and after 1.4.2003 but up to 31.03.2012 where premium payable during the term of the policy exceeds 20% of actual Capital Sum Assured will be taxable and not exempted.

Policies issued on and after 1.4.2012 and premium payable for any of the policy year during the term of the policy exceeds 10% of actual capital Sum assured will be taxable not exempted.

Policies issued on and after 1.4.2012 and premium payable for any of the policy year during the term of the policy exceeds 10% of actual capital Sum assured will be taxable not exempted.

194 DA is not applicable for policies issued up to 31.3.2003 though the maturity is payable on or after 1.10.2014.  Key man life insurance policies are taxable.

Death Claim amounts on Life Insurance policies are  exempted.

Under annuity/Pension plans were where no risk cover or death SA is available such policies are not covered under Section 194DA.