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In an effort to enhance ease of doing business and improve taxpayer compliance, the rate of TDS on insurance premium commissions and payment of life insurance policy under Section 194D and Section 194DA is proposed to be reduced from 5% to 2%. The reduced TDS rate under Section 194D will be effective from April 1, 2025, while the revised rate under Section 194DA will be applicable from October 1, 2024.
Section 194D: TDS on Insurance Commission
This provision of tax deduction mostly hits people who work as insurance agents for companies like LIC, HDFC Insurance, ICICI Insurance, etc.
Who is required to deduct TDS u/s 194D?
Any person who pays to resident an income in the form of remuneration or reward (as commission or otherwise) for generating insurance business.
TDS deduction provisions under Section 194D apply exclusively to resident individuals. For non-residents, Section 195 will apply.
What is the rate & time of tax deduction u/s 194D?
The rate of tax u/s 194D is 5%(Resident person other than the company)/10%( Domestic company) ( as the case may be) and 20% if the deductee does not quote his PAN. And the time of deduction is earlier of, the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft, or other modes).
Exception under Section 194D:
If the amount of such income (whether individually or in aggregate for the financial year) does not exceed Rs. 15000 or if Form 15G/H has been received, then no TDS u/s 194D is required.
Section 194DA: TDS on Payment of Life Insurance Policy
It won’t be wrong to say that every 8 out of 10 people in India opt for a Life Insurance Policy. And why not? no one can predict the future; hence, to save oneself from any future mishap, people go for life insurance.
But you’ll be surprised to know that payment received on maturity of the insurance policy attracts provisions of tax deduction u/s 194DA if the policy is not exempt under section 10(10D). Let’s understand it as follows:
Who is required to deduct TDS u/s 194DA?
Any person who is paying an amount to a resident by way of an insurance policy (including bonus amount, if any) will have to deduct tax before releasing the amount.
What is the rate & time of tax deduction u/s 194DA?
The rate of tax u/s 194DA is 5% at the time of making the payment. (20% if the deductee does not quote his PAN)
No TDS Requirement:
In the below-mentioned situations, no TDS will be required u/s 194DA.
- Where the amount of such payment (or aggregate amount during the financial year) is less than Rs.1,00,000.
- Where the amount of insurance received is as per the following cases:
Penalty for Late TDS Deduction under Section 194D
If the payer forgets to deduct TDS while making a payment, they are liable to pay interest at a rate of 1% per month or part of a month from the date the TDS was due until the actual deduction date.
Difference Between Section 194D & 194DA
The table below shows the difference between sections 194D & 194DA -
| Particulars |
Section 194D |
Section 194DA |
| Applicability |
TDS on insurance commission paid to a resident for procuring or renewing insurance business. |
TDS on taxable life-insurance payouts (maturity/surrender/bonus) paid to a resident, not exempt under Section 10(10D). |
| Who deducts TDS |
Person paying the insurance commission. |
Person paying the life-insurance amount. |
| When TDS is deducted |
At the time of credit or payment, whichever is earlier. |
At the time of payment. |
| Threshold limit |
No TDS if commission is up to ₹15,000. |
No TDS if payment is up to ₹1,00,000. |
| Rate of TDS |
• Individuals/HUF: 5% (2% from April 1, 2025) • Companies: 10% • No PAN: 20% |
• 5% on taxable portion only • Reduced to 2% from October 1, 2024 |
| Exemptions |
• Commission within ₹15,000 • Form 15G/15H submitted |
• Payment within ₹1,00,000 • Form 15G/15H submitted • Exempt under Section 10(10D) |
How to calculate TDS under Section 194DA?
TDS under Section 194DA is calculated only on the taxable part of a life insurance payout, not on the full amount you receive.
First, check whether TDS is applicable. TDS is deducted only if the life insurance payout is not exempt under Section 10(10D) and the total amount paid in a financial year is more than ₹1,00,000. If the policy is fully exempt, no TDS is deducted.
If TDS applies, calculate the taxable amount by subtracting the total premiums paid from the total payout received (maturity amount, surrender value, or bonus).
Taxable amount = Total payout – Total premiums paid
Once the taxable amount is calculated, TDS is deducted at the applicable rate:
- 5% if the payment is made before 1 October 2024
- 2% if the payment is made on or after 1 October 2024
If you have not provided your PAN, TDS can be deducted at a higher rate as per income tax rules.
Example:
If you receive ₹5,00,000 from a policy and have paid ₹3,00,000 as premiums, the taxable amount is ₹2,00,000. TDS will be calculated on ₹2,00,000, not on the full ₹5,00,000.
The insurance company deducts this TDS before making the payment. You can later claim the TDS credit while filing your Income Tax Return (ITR).
Section 194DA exemption checklist
Payout is exempt under Section 10(10D):
No TDS is deducted if the life insurance amount received (including bonus) is exempt under Section 10(10D). This generally applies when:
- The policy was issued between 1 April 2003 and 31 March 2012, and the premium paid does not exceed 20% of the sum assured.
- The policy was issued on or after 1 April 2012, and the premium paid does not exceed 10% of the sum assured.
- The policy was issued on or after 1 April 2013 for persons with disabilities under Sections 80U or 80DDB, and the premium paid does not exceed 15% of the sum assured.
- The amount is received on the death of the insured person.
Total payout does not exceed ₹1,00,000 in a year:
If the total life insurance amount received during the financial year is ₹1,00,000 or less, TDS under Section 194DA is not deducted.
Form 15G or Form 15H submitted:
If you submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) declaring that your total income is below the taxable limit, TDS may not be deducted.
Lower or nil TDS certificate:
If you have a valid lower or nil deduction certificate under Section 197, TDS will be deducted as per that certificate.
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