Sub: Deduction of TDS @ 5% on payment of Maturity of PLI/RPLI Policies exceeding Rs. 1 lakh during a financial year-reg.
Ref: Directorate Letter No. F.No.65-02/2023-LI dated 09.08.2023:
Directorate vide letter cited above had requested to issue necessary instructions for deduction of TDS @ 5% at the time of maturity of PLI/RPLI policies as applicable as per the provisions of Sec 194 DA of IT and its amendments of 2019 .
The extract of the rules 194DA,10(10D) of the Income Tax Act, its amendment and exemptions under 194D are reproduced below :
“Insertion of new section 194DA states:
57. After section 194D of the Income-tax Act, the following section shall be inserted with effect from the 1st day of October, 2014, namely: —
"194DA. Payment in respect of life insurance policy.— 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 two per cent:
Provided that no deduction under this section shall be made where the 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 one hundred thousand rupees.".
Terms of Section 10(10D) of the Income Tax Act, 1961 states :
Tax benefits under Section 10(10D) of the Income Tax Act, 1961 can be claimed only on the following terms and conditions:
* Tax deductions under Section 10(10D) of the Income Tax Act, 1961, is applicable on any sum received under a life insurance plan i.e. Death Benefit or maturity Benefit or Bonus received from life insurance policies
* Payout that is not eligible for tax deductions under Keyman Insurance Policy are eligible for deductions under this section
* Premium paid during any particular year during the policy term cannot be more than 20% of the sum assured for life insurance policies bought between 1st April 2003 and 31st March, 2012
* For policies purchased after 1st April 2012, the premium payment cannot be more than 10% of the sum assured
* The insurance premium for any year during the policy tenure should not exceed 15% of the sum assured. Besides, it also should not have been purchased on or after 1st April 2013. Also, the insurance policy must be for the life of any individual who meets the following criteria:
. Disabled or severely disability individual, as specified under Section 80U of the Income Tax Act, 1961
. Suffering from a disease as specified under Section 80DDB of the Income Tax Act, 1961
Amendment of 194DA states
76. In section 194DA of the Income-tax Act, for the words “two per cent”, the words "one per cent” shall be substituted with effect from the 1st day of June, 2016.
44. In section 194DA of the Income-tax Act, for the words “one per cent.”, the words “five per cent. on the amount of income comprised therein” shall be substituted with effect from the 1st day of September, 2019.
The exemptions of 194DA are as below:
Tax is deductible at the time of payment. No TDS is required if the amount payable during the financial year is less than Rs. 1,00,000. Lower TDS certificate provisions of section 197 are not applicable. However, self-declaration in Form No. 15G/15H can be submitted under section 197A (with effect from June 1, 2015).
In other words, If exemption is available to the recipient under section 10(10D), then the above TDS provisions are not applicable.
According to the above extracts, in the following cases TDS provisions of section 194DA are applicable -
a. any payment under insurance policy issued during April 1, 2003 to March 31, 2012 where annual insurance premium is more than 20% of capital sum assured;
b. any payment under insurance policy issued after March 31, 2012 where annual insurance premium is more than 10% of capital sum assured; or
C. any payment under insurance policy issued after March 31, 2013 to a person covered under section 80U or 80DDB where annual insurance premium is more than 15% of capital sum assured.
For example under the exemption (a, i.e.any payment under insurance policy issued during April 1, 2003 to March 31, 2012 where annual insurance premium is less than 20% of capital sum assured:
If a policy is procured during April 1, 2003 to March 31,2012
Scenario 1
Sum Assured- 10 lakhs,
Policy Term- 9 years
Monthly Premium- 9980/-
Yearly premium- 9980/- x 12= Rs. 1,19,760/-
20% of Capital Sum Assured= Rs.2,00,000/-
Maturity Amount- Rs. 14,68,000/-
As the Annual premium payable is less than 20%, Section 10(10) D is applicable and no TDS to be deducted.
Scenario 2
Sum Assured- 10 lakhs,
Policy Term- 5 years
Monthly Premium- 18,130/-
Yearly premium- 18,130/- x 12= Rs. 2,17,560/-
20% of Capital Sum Assured= Rs.2,00,000/-
Maturity amount- Rs. 12,60,000/-
Total Premium paid-10,87,800/-
As the Annual premium payable is more than 20%, Section 10(10) D is applicable and TDS to be deducted is Maturity Value (Rs.12,60,000/-) - Total Pemium Paid (Rs. 10,87,800/-) is Rs. 1,72,200/- , TDS @ 5% is Rs.8,610/-
b. For example under Exemption b, any payment under insurance policy issued after March 31, 2012 where annual insurance premium is less than 10% of capital sum assured; or
Scenario 1
Sum Assured- 10 lakhs,
Policy Term- 9 years
Monthly Premium- 9980/-
Yearly premium- 9980/- x 12= Rs. 1,19,760/-
10% of Capital Sum Assured= Rs.1,00,000/-
Maturity Amount (MV)-> Rs. 14,68,000/-
Total Premium payable(TPP) ->Rs. 10,77,840/-
As the Annual premium payable is more than 10%, Section 10(10) D is
applicable and TDS to be deducted is MV (Rs.14,68,000/-)- TPP
(Rs. 10,77,840/-) is Rs. 3,90,160/- , TDS @ 5% is Rs.19,508/-
Scenario 2
Sum Assured- 10 lakhs,
Policy Term- 13years
Monthly Premium- 6844/-
Yearly premium- 6844/- x 12= Rs. 82,128/-
10% of Capital Sum Assured= Rs.1,00,000/-
Maturity amount- Rs. 16,76,000/-
Total Premium paid-10,67,664/-
As the Annual premium payable is less than 10%, Section 10(10) D is applicable and no TDS to be deducted.
c. For example under exemption c, any payment under insurance policy issued after March 31, 2013 to a person covered under section 80U or 80DDB where annual insurance premium is less than 15% of capital sum assured.
The scenario’s explained above will remain same and if the policy pertains to handicap persons then 15% may be taken for ascertaining whether 10 (10) D section is applicable or not.
* Tax is not deductible if the payment is made on the death of a person. In view of the above, it is requested to issue suitable instructions to all concerned for deduction of TDS @ 5% at the time of maturity of PLI/RPLI policies as applicable as per the provisions of Sec 194 DA of IT and its amendments of 2019. As there is no provision for deduction of TDS made available in McCamish at present, before entering the amount in the system, the TDS deducted may be checked and shown correctly. Also a remark on the deduction of TDS to be noted.
Encl:a/a
Director (PLI) for Chief PMG Bengaluru 560 001
