Budget 2019 – TDS on Life Insurance Maturity Amount

We all feel our LIife Insurance Maturity is always tax-free. But many of us unaware that the Government introduced the TDS on Life Insurance Maturity Amount and increased the same during Budget 2019.

TDS on Life Insurance Maturity Amount

Hence, let us understand the applicable TDS on Life Insurance Maturity Amount.

Before understanding the TDS concept, let us first understand the taxation on Life Insurance Policies. I have written a detailed post on this (Refer “Tax Benefits of Life Insurance“).

You have to understand below sections to know the Tax Benefits of Life Insurance.

1) Section 80C of Income Tax Act

We all very well know that whatever premium you pay towards life insurance can be shown under Sec 80C. But there are few basic conditions to qualify under this section.

  • Any premium paid towards a life insurance policy on self, spouse or kids and if the policy was issued on or before 31st March 2012, then eligible deduction under Sec 80C will be only 20% of the sum assured.

Let us say Mr.X took life insurance plan before 31st March 2012 with Sum Assured as Rs.3,00,000 term being 10 years and yearly premium Rs.65,000. But according to the above rule, only 20% of Sum Assured (in this case 20% of Rs.3,00,000 which is Rs.60,000) is eligible for tax deduction under Sec 80C. So Mr.X can avail benefit only up to Rs.60, 000 but not Rs.65, 000.

  • Any premium paid towards a life insurance policy on self, spouse or kids and if the policy was issued on or after 1st April 2012, then eligible deduction under Sec 80C will be only 10% of the sum assured.

Let us say Mr.X took life insurance plan after 1st April 2012 with Sum Assured as Rs.3,00,000 term being 10 years and yearly premium Rs.65,000. But according to the above rule, only 10% of Sum Assured (in this case 10% of Rs.3,00,000 which is Rs.30,000) is eligible for tax deduction under Sec 80C. So Mr.X can avail benefit only up to Rs.30, 000 but not whole Rs.65, 000.

2) Sec 80CCC of Income Tax Act

Any premiums paid by taxpayer towards pension schemes like LIC’s New Jeevan Suraksha will be eligible for deduction under this section. Please note below two points here.

  • This section only deals with individual taxpayer. Hence the contribution made in the name of spouse or kids will not be eligible.
  • The aggregate amount of deduction under Sec80C, Sec80CCC and Sec 80CCD (1) shall not exceed Rs.1,50,000.

3) Section 10 (10D) of Income Tax Act

Now it is important for you to understand Section 10 (10D) of IT Act. I will explain to you those terms as below.

# If you purchased the policy on or before March 31, 2003, then such maturity from these policies will be TAX-FREE.

# If you purchased the policy after 1st April 2003 to 31st March 2012, and premium paid towards such policy on self, spouse and kids are LESS than 20% of sum assured, then such maturity amount is TAX-FREE.

# If you purchased the policy on or after 1st April 2012, and premium paid towards such policy on self, spouse and kids is LESS than 10% of sum assured, then such maturity amount is TAX-FREE.

# Death Claim amount one receives from Life Insurance is completely TAX-FREE.

# Any Sum received under Keyman Insurance is TAX-FREE.

# If 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) is TAX-FREE.

# If you purchased the policy which is issued on or before March 31, 2003, then such maturity from these policies will be TAX-FREE.

Budget 2019 – TDS on Life Insurance Maturity Amount

A few years back Government of India introduced the TDS concept on the Life Insurance Maturity Amount. This TDS rate was now revised in Budget 2019.

In finance bill of Budget 2019, the government said, “It is proposed to amend the said section so as to provide that the levy of tax deduction at source shall be on the income comprised in the sum payable by way of redemption of a life insurance policy, including the sum allocated by way of bonus on such life insurance policy, excluding the amount exempted under the said clause (10D) of section 10 at the increased rate of five per cent.”

Hence, as per this change, there is a change in Income Tax Section 194DA. As per this, the TDS will be applicable to below conditions.

# If your maturity amount exceeds more than Rs.1 lakh in a year.

# If the policies are not exempt as per the above said Sec.10(10D) of IT Act.

# If you do not provide the PAN details with the Life Insurance Companies.

In such a situation, Life Insurance Companies will deduct the TDS. The new TDS rate after Budget 2019 will be as below.

# if your maturity amount exceeds more than Rs.1 lakh a year and policies are not exempt as per the above said Sec.10(10D), then there will be a TDS of 5%.

# If you do not provide the PAN details with the Life Insurance Companies, then there will be a TDS of 20%.

Note:-

The above said all rules are the same for

  • Term Life Insurance, Endowment Plans or ULIP Plans.
  • Maturity, Death Claim or Surrender of the Policies.

7 Comments

  1. Is primium paid excluded from tax? e.g if total primium paid is 10 lac and total maturity amount is 18 lacs then 8lac is taxable or 18 lacs? Do I need to pay as per my tax bracket or it’s @10%?

    Thank you!

    Reply
    • Dear Vinay,
      Only the gain is taxable and you have to show it under the head of “Income from Other Sources”. Yes, it is taxable as per the tax slab.

      Reply
      • Dear Sir,
        I had a single insurance policy (LIC Bima Nivesh). The premium paid was 10Lacs, and total payout is 14 Lacs. In 26AS, the entire 14 Lacs is appearing as income, and LIC has deducted 1% as TDS. Ideally i should pay tax only on gain of 4 Lacs, but IT dept is asking for a declaration of 14 Lacs in IT return and pay per tax slab. So this is resulting in tax of 30% on 14 Lacs, instead of 30% on 4 Lacs. Kindly advise how this can be resolved, or the tax can be filed accurately.

        Reply
  2. Very Sad News

    Reply
  3. Does this include ULIP too in which insurance cover is not 10 times of premium?

    Reply

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