Section 194DA: 2% TDS on Life Insurance Policy Maturity Amount
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.
Sum received on the death of the insured is still not taxable.
Text of the Amendment
“In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempted under section 10(10D) of the Act, it is proposed to insert a new section in the Act to provide for deduction of tax at the rate of 2 per cent on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D) of the Act.”