TDS on PLI/RPLI payout under section 194DA and its Implication in Department of Posts

ANNEXURE

TDS on PLI/RPLI payout under section 194DA and its Implication

What is Section 194DA?

Under Section 194DA of the IT Act' 1961, insurance companies in India have been made able to deduct tax at source in case of life insurance policy at the time of maturity payment. his means payment made to insurance policy holders by the company is taxable at the time of payment. TDS is also deducted on the bonus payment.

Note: Any sum received against life insurance policy is covered under this act. Even loan taken against life insurance policy will be covered.

"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 5% on the amount of income comprised therein,"

Exemption:

As mentioned in the text, no TDS under this section is deducted if the life insurance policy is covered by clause(10D) of section 10 of IT Act' 1961. Policies that fall under this section include:

Premium paid during any year must not exceed 20% of the sum assured for policies purchased between April 1, 2003, and April 30, 2012

If the policy is purchased after April 30, 2012, the premium amount should not be more than 10% of the sum assured

In case of the following:

1. With a disability, or severe disability as per Section 80U.

2. Has any disease, or ailment as specified in the rules under section 80 DDB

Insurance premium payable in any year should not exceed 15% of the sum assured for policy purchased on, or after April 1, 2013.

Note: No TDS will be deducted if the taxpayer submits Form 15G/Form 15H under IT Act.

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Payment threshold:

TDS deduction under Section 194DA is made only if the payment in a financial year is more than Rs 1 Lakh. On any payment less than that, no TDS is applicable.

TDS rate under Section 194DA

Life insurance maturity payment type TDS rate

Life insurance companies                     5%

Other Indian companies                        10%

Where a taxpayer does not submit PAN details 20%

The government has made changes to Section 194DA concerning the deduction of Tax Deducted at Source (TDS) on taxable life insurance maturity proceeds. As per the amendment, the deductor is now required to deduct TDS at a higher rate of 5% instead of the previous rate of 1%. This applies to the sum received through life insurance policies that do not fall under the exemption provided by Section10(10D). Important Note:

Under the IT Act 1961, TDS in case of Insurance policies will not be applicable in two scenarios:

1. 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 Rs 1 lakh. (Proviso to section 194DA)

2. Any sum received on the Death of a person. {Proviso to section 10 (10D) In these cases, there is no requirement to deduct any TDS on maturity amount. PRACTICAL CASES:

A. Policy is procured during April 1, 2003 to March 31 2012

Scenario: 1

Sum assured: 10Lakh

Policy term: 9 years

Monthly Premium: 9,980

Yearly premium: 9980 *12= 1,19,760/-

20% of Capital Sum assured: 2,00,000/-

Maturity Amount: 14,68,000/-

As the annual premium payable is less than 20% of capital sum assured. Exemption under clause (10D) of Section 10 is applicable and no TDS to be deducted.

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Scenario:2

Sum assured: 10 Lakh

Policy term: 5 years

Monthly Premium: 18,130/-

Yearly premium: 18,130 *12= 2,17,560/- Total Premium paid: 10,87,800/-

20% of Capital Sum assured: 2,00,000/-

Maturity Amount: 12,60,000/-

As the annual premium payable is more than 20% of capital sum assured. Exemption under clause (100) of Section 10 is not applicable.

TDS to be deducted will be:

(Total maturity value - Total premium paid) * 5% (12,60,000-10,87,800) * 5% = 8,610/-

Policy is procured on or after 01/04/2012

Scenario:1

Sum assured: 10 Lakh

Policy term: 9 years

Monthly Premium: 9,980/-

Yearly premium: 9,980 *12= 1,19,760/-

Total Premium paid: 10,77,840/-

10% of Capital Sum assured: 1,00,000/-

Maturity Amount: 14,68,000/-

As the annual premium payable is more than 10% of capital sum assured. Exemption under clause (10D) of Section 10 is not applicable.

TDS will be deducted @ 5%, as follows

TDS (Maturity Value- Total premium paid) *5% =(14,68,000-10,77,480) *5% = 19,508/-

Scenario:2

Sum assured: 10 Lakh

Policy term: 13 years

Monthly Premium: 6,840/-

Yearly premium: 6,840 *12= 82,128/-

10% of Capital Sum assured: 1,00,000/-

Maturity Amount: 16,76,000/-

Total premium paid- 10,67,644/-

As the annual premium payable is less than 10% of capital sum assured.

File No. 65-02/2023-LI (Computer No. 3143469)