Eligibility of Section 194DA:
- Any person responsible for paying to a resident any sum under a life insurance policy.
- Under this section 194DA the payee must be resident of India.
- In this section TDS applicable on the income component i.e maturity amount minus premium amount paid.
Time for Deduction under Section 194DA:
TDS required to deduct under the section 194DA at the time of payment of LIC maturity amount.
TDS rates under section 194DA:
- The rate of tax u/s 194DA is 5% at the time of making the payment.
- If Deductee PAN is not quoted then, tax rate is applicable 20%.
No TDS Requirement:
- No TDS if LIC maturity amount is less than Rs: 1,00,000.
- No TDS if LIC maturity amount is exempted under section 10(10DD).
Exceptions to Exemptions u/s 10(10DD):
- Any amount received under section 80DD (3) or 80DDA (3).
- Any amount received under keyman insurance policy
- LIC policy is bought after 1st April 2003 but before 31st March 2012 and premium is more than 20% of the sum assured.
- LIC policy is bought after 1st April 2012 and the premium paid is more than 10% of sum assured.
- LIC policies bought for persons with disability or severe disability according to section 80U , or for individuals suffering from ailments covered under section 80DDB after 1st April 2013 , and the premiums are more than 15% of sum assured.
Examples for More Understanding:
Example-1
Mr. Santosh, a resident, is due to receive 4.50 lakhs on 31.3.2023, towards maturity proceeds of LIC policy taken on 1.4.2020, for which the sum assured is 4 lakhs and the annual premium is 1,25,000.
Answer:
Since the annual premium exceeds 10% of sum assured in respect of a policy taken after 31.3.2012, the maturity proceeds of 4,50,000 due on 31.3.2023 are not exempt us 10(10D) in the hands of Mr. Santosh. Therefore, tax is required to be deducted @5% u/s 194DA on the amount of income comprised therein i.e., on 75,000 ( 4,50,000, being maturity proceeds – 3,75,000, being the entire amount of insurance premium paid)
Example-2
Mr. Santosh, a resident, is due to receive 95,000 on 1.8.2022 towards maturity proceeds of LIC policy taken on 1.8.2015 for which the sum assured is 90,000 and the annual premium is 10,000.
Answer:
Even though the annual premium exceeds 10% of sum assured in respect of a policy taken after 31.3.2012, and consequently, the maturity proceeds of 95,000 due on 1.8.2022 would not be exempt u/s 10(10D) in the hands of Mr. Santosh. the tax deduction provisions w/s 194DA are not attracted since the maturity proceeds are less than 1 lakh.
