Tax Deduction at Source on Life Insurance Payouts

So the New Finance Bill of 2015 has introduced a 2% TDS on maturity of your life insurance policy.


Who is this applicable to

Policy holders holding a life insurance policy where the premium paid in a year exceeds 10% of the sum assured if policy issued after 1st April 2012. (20% if policy issued before that date) .Sec 10(10D) of Income Tax Act 1961


Why

Many assessees even though liable to pay tax on such proceeds would not disclose such income in their tax returns thus forcing the Income Tax Department to bring in a provision to plug this gap.

When applicable from

1st Oct 2014

Who deducts

The insurance company


Exemptions available

If the payout is less Rs 1 lac in aggregate in a year , the insurer will not deduct TDS on that amount, ie you will receive the full proceeds in that year.

However you have to show such proceeds in your tax return for the year if premium paid exceeds 10%.


Example of exemption


If A took a life policy with sum assured of Rs 10,00,000/ for 10 years , his premium must not exceed 10% of such amount ,ie, Rs 1,00,000 in a year to qualify for tax exemption

Then his premium will qualify for 80C deduction each year and overall maturity proceeds are non taxable. There will be no TDS in this case


10 % Limits crossed
If premium is Rs 2,00,000/ instead, then he will not be eligible for exemption .

  • If he gets payouts at Rs 90,000 per year as maturity proceeds , he is not liable to TDS.
  • If he gets payouts at Rs 1,20,000 per year, then net proceeds will be 1,17,600/- after deduction of TDS (Rs 2,400/-) .This proceed is inclusive of original investment and bonus.



Who it affects the most

People who pay a single premium in a year( ie complete premium in single shot) are likely to cross the 10% threshold and are definitely taxed when proceeds mature.

Comments

Post a Comment

Popular posts from this blog

Swachh Bharat Cess @0.5% - Applicable on all services as per Service Tax from Nov 15 2015

The government of India in order to encourage cleanliness has introduced the Swachh Bharat Cess @0.5% to use for such purposes.  For such a vast and populous country we do have our fair share of cleanliness concerns. In fact, persons entrusted with the job of keeping our country clean, struggle constantly. Cleanliness also has huge impact on public health. Dirty surroundings also cause many diseases, like, malaria, dengue, diarrhea, jaundice, cholera etc., with associated high public health expenditure. According to the Government of India estimates, expenditure on health adds up to Rs.6,700 crore annually (approximately Rs.60 per capital). Increased allocation for Swachh Bharat Abhiyan can prevent many of these diseases with consequential benefit to one and all.  So your telephone , insurance ,eating out will all be included with such a cess from Nov 15 ie 50 paise for every 100 rupees and is set to be a bit more expensive. Relevant notification is as follows. ...
Read more

Which Income Tax Return Form to Fill - A Simple Guide

The income tax returns have to filed with the government in a prescribed format . The following allows you to select the appropriate form applicable for you. ITR - 1 (SAHAJ) This form is applicable for mostly salaried class of people. If you are getting salary or pension income                  rent or occupying in one house property                  exempt income (agricultural income upto Rs 5000)                  other income like fd interest (other than lottery/horse race winnings) ITR - 2A In addition to the above, if you are getting                   agricultural income above Rs 5000                   income or loss from more than 1 house property                   lottery/horse race winnings ITR ...
Read more