Rate & time of tax deduction u/s 194DA
- The rate of tax u/s 194DA is 5% at the time of making the payment. (20% if the deductee doe not quote his PAN)
- Any person who is paying an amount to a resident by way of an insurance policy (including bonus amount, if any) will have to deduct tax before releasing the amount.
Exception to 194DA
In the below-mentioned situations, no TDS will be required u/s 194DA.
- Where the amount of such payment (or aggregate amount during the financial year) is less than Rs.1,00,000.
- Where the amount of insurance received is as per the following cases:
Example
Mr. Santosh took insurance policy on 26th July, 2015 for ₹ 2,50,000/-. He paid premium of ₹ 55,000/- every year. On 25th July, 2020 he received ₹ 3,50,000/- (including bonus) as the maturity proceeds. State whether TDS provisions are applicable or not. Policy is taken after 1st April, 2012. Hence, amount of deduction allowed on premium should not exceed 10% of the sum assured. In this case, the sum assured was ₹ 2,50,000/- so amount of premium should not exceed ₹ 25,000/-. However actual premium paid (₹ 55,000/-) is more than ceiling limit (₹ 25,000/-). Hence, the proceeds are taxable.
As per Section 194DA, since the proceeds are more than ₹ 1,00,000/- TDS provisions are applicable. Hence the insurance company will deduct TDS @ 5% of ₹ 1,00,000/- i.e. ₹ 5000/- while making the payment of the maturity proceeds.
