S V Raghunath

Insurance policies are major source  tax saving Instruments for Individual and Hindu undivided Families, recently there are lot of changes have taken place including new TDS Section 194DA on Payments received under Life Insurance Policies introduced by Finance ACT ( NO 2 ) of 2014. An attempt has be made present the amendments in easily understandable way.

1)      Amendments to section 80C – Tax Effect on Life Insurance Policies:-

While claiming deduction U/s. 80C for Insurance Premium payments paid or deposited on life insurance policies, exemption amount is restricted as below on percentage of Capital Sum Assured:

For this purpose insurance policies are divided into two categories (for easy understanding purpose classified as) one being regular life insurance policies and second being Life insurance policies specified section 80U – Deduction in case of person with disability & 80DDB – Deduction in respect of medical treatment

For regular Life Insurance Policies (other than contract for deferred annuity)

Issued from 01.04.2012 – premium paid not in excess of 10% of Capital Sum Assured (as amended by Finance Act 2012.

Issued from 01.04.2003 and on or before 31.03.2012 – premium paid not in excess of 20% of Capital Sum Assured

And

for other Life Insurance Policies issued in lieu of Sec. 80U (person with disability as specified) & Sec. 80DDB (suffering from diseases and ailments) issued on or after 01.04.2013  – premium paid not in excess of 15% of Capital Sum Assured as amended by Finance Act 2013.

Actual capital sum assured is defined as (Explanation given under 80C (3A))

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.

Therefore deduction U/s 80C is restricted to 10% or 15% as the case may be of the capital sum assured.

It is to be noted that if where the assessee terminates his contract with insurance company by reason of failure to pay any premium

·         In case of single premium policy within two years after the date of commencement of insurance or

·         In any other case, before premiums have been paid for two years

·         In case of ULIPS 80C(2)(x) or (xi) within five years

The aggregate of amount of deduction so claimed will be treated as income in such previous year and shall be liable to tax.

2)       TDS on Payment received on Life Insurance policy U/s 194DA [Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-10-2014.]

Section reproduced below

194DA. 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.

Summarizing the section

·         Rate of TDS : 2%

·         No Pan cases – TDS rate is 20%

·         TDS is deductable where aggregate payment during the financial year exceeds Rupees one Lakh

·         Annuities received ie., pension plan are not covered u/s10(10D)  therefore liable for TDS subject to limit specified ie., Rupees One Lakh

·         Terminated Life Insurance contracts subject to limit specified ie., Rupees One Lakh

Exemption :

·         Aggregate payment does not exceed one lakh rupees during the Financial Year

·         Policies issued satisfying section 10(10D) and amount received on death of the person other than  Keyman insurance policy and U/s  80DD(3) or U/s. 80DDA(3)

·         Any sum received U/s  80DD(3) or U/s. 80DDA(3)

·         Any sum received under a Keyman insurance policy

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Tags : Section 80C (134)

5 responses to “Sec. 80C Amendments to Life insurance policies & TDS there on”

  1. P G PRABHU says:

    I wanted to fill the ITR 2 with 194DA income and where to include this under TDS is confusing

  2. P G PRABHU says:

    I want clarification on 194da

  3. P G PRABHU says:

    HI

  4. Mr. Singh says:

    Please check income tax circular 7/2003 dated 5.9.2003, point no.10.3. It says the income accruing on such policies (not including the premium paid by the assessee) shall become taxable.

  5. paramjit says:

    hello sakshi jain, I have the same problem to know how much amount is to be clubbed in total income for calculating tax. As per my opinion the section 194DA only orders the insurance company to deduct tax at 2% on entire proceeds including premium and bonus where a valid pan number is given else if valid pan is not given 20% on entire proceeds assuming it is undisclosed income. To my opinion & search there is nowhere written in 194DA clause for the tax payer to pay tax. This 194DA is meant for insurance company only. If the govt wants to tax such high premium policies, the net gain has to be taxed rest money is already taxed income. Please update me if you get further information at psingh1366@gmail.com

  6. SAKSHI JAIN says:

    HEY,
    I HAVE RECEIVED MATURITY OF RS. 150000/- AFTER DEDUCTING TDS @2% U/s 194DA.OF LIC.I WANTED TO KNOW HOW MUCH AMOUNT IS TO BE CLUBBED IN MY TOTAL INCOME, FOR THE PURPOSE OF CALCULATION OF TAX.

  7. Mohammad Nadeem Hashmi says:

    Dear T. T. Nair,

    You have invested Rs. 9 lakhs in the Post Office MIS Scheme.So tax liabilities is following under the income Tax act 1961:-

    1.Interest on Post office FD is Taxable.

    2. The monthly interest received is deposited in the Post Office Cumulative Time Deposit every month for 5 years. So amount deposited in the Post Office CTD for 5 years is not taxable, but interest earned/credited of such investment is taxable like recurring deposit

    Tax Liabilities have not any impact due to retired person.

  8. Monika says:

    Hi,

    One of my clients has recieved LIC maturity proceeds, for a ULIP policy and also as a nominee for his dad’s policy. The total sum exceeds 2lakhs, TDS is deducted at 2% on the entire amount.
    According, to me the income is exempt,so should i claim refund of the TDS.

  9. Santosh H says:

    sir ,
    I have withdrawn ICICI lIFE INSURANCE, i got Rs.223309.91 after deducting 2% tds. now i am filing ITR, what should I have to show in my income and where this 2% is to be shown, i am in 30% Tax slab.

    pl help me and reply me to h.sssantosh@gmail.com

    thanks
    Santosh H

  10. PRASHANTH says:

    signal Premium paid on endownment policy Rs. 150000. – dtd 15/05/2015

    under deduction u/s 80c can i calim Rs. 150000 or 10% of signal premium paid of 150000 – Rs. 15000

  11. AK BHALLA says:

    sir ,
    I had taken a SBI LIFE-SUBH NIVESH WHOLE LIFE PLAN in FEBRUARY 2010 with a half yearly premium of Rs.14,947/ for FIVE YEARS with SUM ASSURED of Rs.99,000/-

    After completing FIVE YEARS in February 2015 i got Rs 112441/- from SBI LIFE after deducting 2% tds. now i am filing ITR, what should I have to show in my income and where this 2% is to be shown, i am in 30% Tax slab. During these five years period I had paid Rs.1,49,470/- to SBI and got only Rs.1,12,441.
    pl help me and reply me to dklbhalla@yahoo.com
    thanks

  12. gp dimri says:

    still waiting for reply pl

    gp dimri

  13. gp dimri says:

    sir ,
    i got Rs 176000 fro sbi life . 2% tds deducted. now i am filing return should i show some amount in in come and where this 2% is to be shown, if i add 75000 in come it is calculating tax .

    pl help

    thanks

  14. T.T. Nair says:

    T. T. Nair, Mumbai

    Sir,

    I am a retired person. I have invested Rs. 9 lakhs in the Post Office MIS Scheme.

    1. Whether the interest is Taxable?

    2. The monthly interest received is deposited in the Post Office Cumulative Time Deposit every month for 5 years. Whether the amount deposited in the Post Office CTD for 5 years is taxable?

  15. Gopal Sabu says:

    Hello – i have a life insurance policy with premium due date of 28 March 2014. If i pay the permium on 4th April 2015 can i claim deduction in FY 15-16?

  16. Rajesh kumar Gupta says:

    Further it is stated that as per the wordings of section ,194DA TDS is to be deducted on sum including bonus paid under a life insurance policy if premium paid under a policy exceeds 20% of capital sum assured(for policies issued between 01.04.2003 and 31.03.2012) or 10% of SA (for policies issued on or after 01.04.2012) as these are not exempted under section 10(10D). This wording makes entire sum including bonus a subject matter of TDS under 194DA and TDS deducted on @2% on entire maturity sum( including premium paid).However, as per circular 7/2003 issued on 23.09.2003, only income accruing (not including premium) is to be taxed. Hence two provisions contradict each other and result in TDS on capital investment, by means of single and regular premium,paid during the term of policy. Hence a clarification is needed so that sums including bonus net of premium paid only gets taxed.

  17. Rajesh kumar Gupta says:

    Dear Sir, Annuity payable under a pension plan have never been a subject matter of section 10(10D). However whenever a reference is made to any life insurance policy it states that excluding deferred pension plan. So how applicability of section 194DA extends to annuity payments which have always been taxable in the hands of individual but no TDS provisions have been made applicable to it.

  18. B.Chackrapani Warrier says:

    Read. Thanks.

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