Section194DA TDS on Payment in respect of life insurance policy

As per section 194DA:  Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of one per cent

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees

Summary of Section 194DA of the Income Tax Act

• Deductor/ Payer: Any person
• Deductee/ Payee: Resident person
• Nature of Payment: Any payment made to a resident Indian upon the maturity of a life insurance policy including the bonus which is not exempt u/s 10(10D)
• Threshold Limit: 1,00,000/- or more
• Rate of TDS:
  • TDS is required to be deducted @ 1% (w. e. f. 01-09-2019)
  • However, in case the PAN is not furnished, then Deductor would be liable to deduct TDS @ 20% i.e. at the maximum marginal rate.
• Time of deduction: At the time of the payment
• No TDS is required to be deducted:
  • If aggregate of the amounts of such income paid during the financial year is less than Rs. 1,00,000/-.
  • TDS is not required to be deducted under section 194DA if such income including bonus is exempt under section 10(10D).
• Point to be Noted:
  • Section 194DA is applicable only in case of payment made to resident person.
  • Section 194DA is not applicable in case of payment made to non-resident person. If payment made to non-resident person then section 195 is applicable.
• Section 10(10D) of the Income Tax Act:

Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—

(a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or

(b) any sum received under a Keyman insurance policy; or

(c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; or

(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:

Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person:

Provided further that for the purpose of calculating the actual capital sum assured under sub-clause (c), effect shall be given to the Explanation to sub-section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be:

Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is—

• • a person with disability or a person with severe disability as referred to in section 80U; or
  • suffering from disease or ailment as specified in the rules made under section 80DDB,

the provisions of this sub-clause shall have effect as if for the words “ten per cent”, the words “fifteen per cent” had been substituted.

Explanation 1—For the purposes of this clause, “Keyman insurance policy” means a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration.

Explanation 2—For the purposes of sub-clause (d), the expression “actual capital sum assured” shall have the meaning assigned to it in the Explanation to sub-section (3A) of section 80C.