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Know About TDS on Life Insurance Policies

October 05, 2018 1806

What is TDS?

Tax Deducted at Source, or TDS, was introduced as a system that deducts tax before providing an income to a person. Under this provision, any person or institution that is required to make a payment such as a salary, professional fees, commission, rent, interest, etc. is required to deduct a certain percentage of the total payment as tax, before making the final payment. The amount that is deducted, is then remitted to the Government.

For all practical purposes, the prescribed rate of deductions has been specified in the relevant provisions of the Income Tax Act, 1961. The Act also has TDS provisions in place for insurance.

When it comes to life insurance, there is a general misconception among policyholders that TDS isn’t applicable when their policy matures. To help understand this topic better, we need to first familiarize ourselves with Section 10(10)D.

Guidelines under Section 10(10)D:

This section states that any amount you get from a life insurance policy, including a term plan or a ULIP, will not be a part of your taxable income provided:

  • The policy is issued on or before 31st March 2012, where the sum assured is at least five times the annual premium paid for the policy.
     
  • The policy is issued on or after 1st April 2012, where the sum assured is at least ten times the annual premium paid for the policy.
     
  • The policy is issued on or after 1st April 2013 for those who are disabled or suffering from ailments as specified by the Income Tax Act, where the premium payable in any given year exceeds 15% of the actual sum assured (as per section 80DDB).

Now, let’s move on to the new Section 194DA.

In 2014, the government of India passed a new Finance Bill that directly impacts policyholders. According to this new act, TDS will be applied on maturity payouts if:
 

The policies are not exempt under section 10(10)D or if the maturity amount exceeds Rs. 1 lakh in a given financial year.
PAN details are available, then 5% TDS will be applicable.
PAN details are not available, then 20% TDS will be applicable.

So, if you fall under these tax brackets, your insurance company has no choice but to make the deduction. In case your financial goals are dependent on your insurance policy, you may need to revise it at the earliest.

But most importantly, be sure to include the details of your policy while filing your returns. This will ensure you pay the right tax amount, if any.

 

 

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HDFC Life Insurance Company Limited. CIN: L65110MH2000PLC128245, IRDAI Reg. No. 101.

Registered Office: Lodha Excelus, 13th Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai 400 011. Email: [email protected], Tel No: 1800-266-9777 (10 am to 7 pm). The name/letters “HDFC” in the name/logo of the company belongs to Housing Development Finance Corporation Limited (“HDFC Limited”) and is used by HDFC Life under an agreement entered into with HDFC Limited.

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