FAQ’s on TDS under section 194DA

By / / Income Tax

1. Section 194DA of the Income Tax Act, 1961

Section 194DA contains provisions relating to TDS on maturity amount paid under a life insurance policy.

2. Who should deduct tax under this section?

Any person responsible for paying any amount in the nature of sum assured under a life insurance policy to a resident should deduct tax under section 194DA.

3. What is the rate at which tax is deducted under this section?

Tax is deducted at the rate of 5 % on the amount of income.

4. What is the amount on which TDS is deducted under this section?

  • Tax is deducted on the amount of income at the rate of 5%
  • Income = Amount received on maturity – Total Premium Paid by the assessee
  • In case the payee does not furnish his/her PAN, tax shall be deducted at the rate of 20%

5. What is the point of taxation under section 194DA?

Tax should be deducted at the time of payment of the sum assured to the payee.

6. Circumstances where no tax needs to be deducted under this section?

  • Tax shall be deducted on the income part of the maturity amount from any life insurance policy, however, if the maturity amount is not taxable as per section 10(10D) of the Income Tax Act, 1961 no tax needs to be deducted.
  • Following are the items included in section 10(10D) of the Act, in respect of which no tax needs to be levied.
    1. Any amount received under section 80DD(3) or 80DDA(3)
    2. Any sum received under a Keyman Insurance Policy.
    3. Any sum received under a life insurance policy which is issued after 1st April 2003 but before 31st March 2012 and the premium paid is more than 20% of sum assured at any time during the term of the policy.
    4. Any sum received under a life insurance policy which is issued after 1st April 2012 and the premium paid is more than 10% of sum assured at any time during the term of the policy.
    5. Any sum received under a life insurance policy which is issued for persons with disability or severe disability according to section 80U, or for individuals suffering from ailments covered under section 80DDB after 1st April 2013, and the premium paid is more than 15% of sum assured at any time during the term of the policy.

7. Mr. A receives a maturity amount of Rs.6 lakhs under a life insurance policy on 31.3.2022. The policy was bought after 1.4.2019 and the total premium paid by him is Rs.4 lakh for 3 years. What is the amount of TDS to be deducted?

Amount of income chargeable to tax = Amount received on maturity – Total premium paid = 6,00,000 – 4,00,000 = Rs.2,00,000
Therefore, the amount of TDS = 5% on 2,00,000 = Rs. 10,000

8. Mr. Y receives a maturity amount of Rs.70000 under a life insurance policy on 3.1.2022. The policy was taken on 3.1.2018 for which the amount of sum assured is Rs. 65,000 and the annual premium is Rs. 15,000. Is TDS applicable in this case?

  • In the above case, the policy has been taken after 1.4.2012 and the annual premium exceeds 10% of sum assured. Therefore, no exemption is available under section 10(10D) and the income is taxable.
  • However, TDS provisions under section 194DA will not be attracted in the hands of Mr. Y since the maturity amount does not exceed Rs.1 lakh.

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