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 section lO( IOD) shall deduct the tax at source at the time of payment of such sum.
In other words, if any sum (including the sum allocated by way of bonus) received from the insurance company under life insurance policy is not exempt under section 10(10D), the insurance company shall have to deduct the tax at source at the time of payment of such sum.
As per section 10(10D) the following amount received from life insurance company shall not be exempt.
(a) any sum received under section 80DD(3) or section 80DDA(3) or
(b) any sum received under a Keyman insurance policy; or
(c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the terms of the policy exceeds 20% of the actual capital sum assured, or
(d) any sum received under an insurance policy issued on or after the 1st day of April. 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds 10% of the actual capital sum assured:
However, the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person.
Further, where the policy, issued on or after the 1St. day of April, 2013, is for insurance on life of any person, who is—
(i) a person with disability or a person with severe disability as referred to in section 80U; or
(ii) suffering from disease or ailment as specified in the rules made under section 80DDB, the provisions of clause (d) mentioned above shall have effect as if for the words “10%” , the words 15% had been substituted.
As per Explanation to section 80C(3A), ‘actual capital sum assured’ in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account—
(i) the value of any premium agreed to be returned; or
(ii) any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.
Rate of TDS from payment of Life Insurance Policy —
(i) 1% of the sum paid upto 31.8.2019
(ii) w.e.f. 1.9.2019 – 5% of the income comprised in the sum paid
- No surcharge, or health and education cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
- The rate of TDS will be 20%, if PAN is not quoted by the deductee.
- Section 197 is not applicable in case of section 194DA and hence tax shall be deducted at the applicable rate.
Where No Tax is to be Deducted at Source in case of Life Insurance Policy
(1) No deduction under section 194DA 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 Rs. 1,00,000.
(2) Where a self-declaration under Form No. 15G/15H is furnished by the employee [Section 197A (1A), (1B) and (1C]:
The employee may furnish a declaration in writing in duplicate in new Form No. 15G to the payer to the effect that there is no tax payable on his Total Income. In this case, the payer shall not deduct any tax at source.
However, as per section 197A (1B), the assessee cannot furnish the declaration under this clause if the aggregate amount of the following incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to tax:
(1) Payment from accumulated balance of recognized provident fund, if taxable.
(2) Interest on securities.
(3) Interest other than interest on securities.
(4) Payment in respect of life insurance policy, if taxable.
(5) Insurance commission
(6) Payment in respect of deposit under National Saving Scheme.
(7) Payment in respect of rent.
Notwithstanding anything contained in section 197A(1B), above, no deduction of tax shall be made from the above incomes in the case of an individual resident in India who is of the age of 60 year or more at any time during the previous year, if such individual furnishes to the payer, a declaration in writing in duplicate in Form No. I 5H to the effect that the tax on his estimated total income of the previous year in which the above income is to be included in computing has total income will be Nil.
In the case of such senior citizen, the income from the above sources can be more than the maximum amount which is not chargeable to tax but the tax on his estimated total income, inclusive of such incomes, should be nil.
As per section 206AA (2), declaration under Form No. 15G or 15H shall not be valid if it does not contain the permanent account number of the declarant. In case any declaration becomes invalid, the deductor shall deduct the tax @ 20% except where the payment is made from accumulated balance of recognised provident fund where it will be deducted at the maximum marginal rate.
The payer of the income is required to deliver to the Principal Commissioner or Commissioner one copy of declaration given under new Form 15G on or before the 7th day of month next following the month in which the declaration is furnished to him.