Section 194DA of the Income Tax Act specifies the procedures for calculating, exempting, and collecting TDS on insurance commissions and premium payments. Furthermore, any individual or firm that pays a resident Indian any amount upon the maturity of a life insurance policy (including bonus) will be subject to a 1% tax deduction. Furthermore, the payment will not include any income reported under Section 10 D of the Income Tax Act.
However, the Union Budget 2019 proposed raising the TDS deduction rate to 5% on income consisting of policy proceeds paid or payable on maturity. If no PAN is provided, TDS can be deducted at the maximum marginal rate of 20%
Eligibility Criteria for Section 194DA Deduction Claims
Here are the requirements for claiming a deduction under Section 194DA of the Income Tax Act :
· The deduction is available for any value received from a foreign life insurance company.
· You can claim a deduction if you can provide Form 15G/15H as proof that you are not liable for taxes on your total revenue.
· Profits earned on the maturity of an insurance policy are tax-free if the sum assured is at least ten times the annual premium, according to Section 10 (10 D).
· Money received by the beneficiary following the death of the policyholder is also tax-free.
What Is Section 194DA’s Importance?
Other than the amount available under clause (10D) of Section 10, any payment to be credited to an Indian national upon the maturity of the insurance policy, including the bonus, will be subject to TDS.
Section 194 DA requires any individual who credits the payment to an Indian national after the maturity of the life insurance policy to deduct applicable TDS.
Rate of TDS under Section 194D
· TDS rate under Section 194DA The tax rate under Section 194DA is 5% on only the Income Part of the payment made under LIP.
· After deducting the insured person’s insurance premiums from the total amount received from the insurance company.)
· If the deductee fails to provide the PAN details to the Life Insurance Companies, a TDS of 20% will be levied.
· Threshold Limitation No deduction shall be made under this section if the amount of such payment, or the aggregate amount of such payments to the payee during the fiscal year, is less than Rs. 100,000.
Is Section 194DA income taxable?
Life Insurance Policies with TDS
Friends, the maturity proceeds of life insurance policies are eligible for TDS deduction under section 194DA of the Income Tax Act of 1961. If the insurance company deducted TDS on a claim paid to you, the proceeds of that policy are taxable under the Income Tax Act.
Section ten exemptions (10D)
Section 10 (10D) exempts any sum received under the LIC policy, including the amount of the bonus.
This section is subject to the following exceptions:
● Any payment made under sections 80DD (3) or 80DDA (3).
● Any amount received under a keyman insurance policyLIC policy purchased after April 1, 2003 but before March 31, 2012, and the premium is greater than 20% of the sum assured
● A LIC policy is purchased after April 1, 2012, and the premium paid exceeds 10% of the sum assured.
● LIC policies purchased after 1st April 2013 for persons with disability or severe disability under section 80U, or for individuals suffering from ailments covered under section 80DDB, and the premiums are more than 15% of the annual premium.
To summarise, section 194D discusses the tax implications of the insurance agent’s commission earned after selling the policy. If the assured sum of the commission earned by the agent exceeds the maximum-threshold limit, i.e. Rs 15000 per year, a 5% tax will be levied on such income.
Meanwhile, Section 194DA addresses LIC withdrawals, stating that LIC withdrawals that are taxable under the IT Act will be subject to 1% TDS if the amount of such withdrawal exceeds Rs 100,000.7