Section 194D of the Income Tax Act 1961 pertains to Tax Deducted at Source (TDS) on income from commissions for insurance agents. On the other hand, Section 194DA of the Income Tax Act 1961 deals with the taxation of life insurance payments (maturity or death payouts). Unless the policy is exempt under Section 10(10D) of the Income Tax Act, any payout exceeding ₹1 lakh must be subject to tax at source (TDS) under Section 194DA. Read on to learn more details.
Life Cover Starting @ just ₹18/day*
Choose India’s Only Personalised Term Plan
Modify coverage as per your life stages & commitments
Hassle-Free Claim Settlement
99.38% Claim settlement ratio*
Smart Income Tax Savings
Save up to ₹54,600* on your taxes
The Income Tax Act of 1961 introduced TDS as a way to collect taxes on various types of income, allowing the government to ensure tax revenue is collected in advance. Section 194D and Section 194DA of the Income Tax Act are two specific TDS sections targeting insurance-related earnings, whether from commissions or maturity or death payouts. These sections are crucial for insurance agents and policyholders, establishing who must deduct TDS, at what rate, and under what circumstances.
Section 194DA is a provision in the Indian Income Tax Act that mandates Tax Deducted at Source (TDS) on payments made from life insurance policies, such as maturity or death benefits, under certain conditions.
Under Section 194DA, any payout from a life insurance policy, including maturity benefits and death benefits, is subject to TDS. It applies only if the life insurance policy payment exceeds ₹1 lakh in a financial year. The insurance company carries out this deduction before disbursing the payout to the policyholder. The TDS rate is typically 5% on the income portion of the payout (total payout minus premiums paid). This ensures that taxes are collected upfront on these payments, streamlining tax compliance for policyholders.
Not all life insurance payouts are subject to TDS. Payments can be exempt from TDS if they meet the criteria outlined in Section 10(10D) of the Income Tax Act. The exemptions include.
Any sum received under a life insurance policy, including the bonus, that is exempt under Section 10(10D) is not subject to TDS. This includes policies where the premium does not exceed 10% of the sum assured for policies issued after April 1, 2012.
Any sum received by a nominee or legal heir on the death of the policyholder, including the bonus, is exempt under Section 10(10D) and not subject to TDS, provided the policy meets the necessary conditions.
Any sum received as the surrender value of the policy, including bonuses, is exempt under Section 10(10D) and not subject to TDS. This applies only if the premium meets the prescribed limits.
With Section 194DA in place, policyholders are encouraged to review their policies for TDS applicability, especially if they plan to receive a payout shortly. Reassessing one’s life insurance policy based on the TDS implications can be helpful for tax planning, as it ensures policyholders maximise tax benefits under Section 10(10D), wherever eligible.
As a taxpayer, it's important for you to be aware of the exemptions and deductions under Section 194DA. This is to ensure you don't pay more tax than necessary. The four key provisions of Section 194DA you should remember include:
| TDS RateThe TDS rate under Section 194 DA may vary depending on the policy and the premium paid. | Threshold LimitTDS is applicable only if the payment towards the life insurance policy exceeds ₹1 lakh in a financial year. |
| Time of DeductionTDS is to be deducted at the time of payment of the policy amount or any sum under the policy, whichever is earlier. | Non-ApplicabilityTDS is not applicable to payments made towards life insurance policies exempt under Section 10(10D) of the Income Tax Act. |
Section 194D in the Indian Income Tax Act applies to the Tax Deducted at Source (TDS) on insurance commissions paid to agents or intermediaries who help generate business for insurance companies. Here’s a breakdown of its key aspects:
| CRITERIA | SECTION 194D | SECTION 194DA |
| Applicable to | Payment of any sum deposited under a life insurance policy (excluding sum allocated for bonuses or profits received by policyholders) | Payment made towards a life insurance policy not exempt under Section 10(10D) of the Income Tax Act |
| Coverage | Applies to any payment made under a life insurance policy | Applies only to payments received towards policies not exempt under Section 10(10D) |
| Applicable to | Any person | Any person (excluding individuals and HUFs) |
| Time of Deduction | Upon payment or credit, whichever comes first | Upon payment or credit, whichever comes first |
| Applicable Form | Form 15G/15H | Form 15G/15H (if applicable) or Form 15I |
The compliance requirements for deducting and depositing TDS under Section 194DA are as follows:
Non-compliance with Section 194 DA can attract penalties and interest. Listed below are the penalties for non-compliance
Payers who fail to deposit TDS within the due date are charged interest at a rate of 1.5% per month or part of a month until the deposits are made.
In case of non-filing of the TDS return by the due date, the payer will be penalised ₹200 per day until the return is filed.
If the payer provides incorrect information in the TDS return, a penalty ranging from ₹10,000 to ₹1 lakh can be levied.
The process for deducting and depositing TDS under Section 194D of the Income Tax Act includes:
The insurance company or payer should collect a valid PAN from the payee (insurance agent).
TDS is deducted at 5% for individuals and 10% for domestic companies on the total commission. If no PAN is provided, the rate increases to 20%.
TDS under Section 194D is applicable only if the annual commission exceeds ₹15,000.
By the seventh day of the subsequent month, the withheld TDS must be turned in to the government. The deadline for commissions paid in March has been moved to April 30.
The insurance company must issue Form 16A as a TDS certificate to the payee, serving as evidence of the deduction.
Ensuring TDS compliance under Section 194D prevents interest penalties and other compliance-related issues.
Non-compliance with Section 194D TDS provisions may lead to the following penalties:
An interest rate of 1.5% per month (or part thereof) is charged for delayed TDS deposits, calculated until the payment date.
If the TDS return is filed late, a penalty of ₹200 per day applies until the return is submitted.
Providing incorrect details in the TDS return can result in penalties between ₹10,000 and ₹1,00,000.
Given the implications of Section 194 DA, it's an excellent time to revisit and evaluate your life insurance policy to ensure it meets your current financial needs and tax planning. The ACKO Life Flexi Term Plan offers several features that can help you manage your life insurance coverage effectively within the framework of Section 194 DA:
The sums can be changed as the person’s financial requirements change, which can be advantageous for tax management.
It is a policy with flexible features that suit your long-term goals and tax strategy.
Choose the form of receiving payouts wisely in order to overcome the taxation problem.
The included will creation services will make the estate planning process easier and ensure that the benefits accrued under the policy are distributed properly.
To always ensure that there is coverage while at the same time making it possible to better financial and tax planning.
Easy claims with less paperwork involved. With ACKO, you can rest assured that the TDS is handled correctly to simplify the process
Compliance with Section 194D and Section 194DA of the Income Tax Act is essential for avoiding penalties and additional tax burdens. Section 194D TDS requires insurance companies to deduct TDS on commission payments above the ₹15,000 threshold, while 194DA TDS mandates TDS on life insurance payouts that exceed ₹1 lakh, barring exemptions under Section 10(10D). Timely TDS deductions and deposits, along with issuing Form 16A certificates, are crucial for payers.
Policyholders must check if their maturity or surrender amounts are taxable and claim TDS credits when filing returns. Understanding and following TDS applicability rules under Section 194 of the Income Tax Act and adhering to TDS deduction rules ensures financial compliance and prevents additional liabilities.
Here are the answers to the most asked common questions related to Section 194 DA:
The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.
1.7K Linkedin Followers 
Reviewed by Vaibhav Kumar Kaushik 
Acko Technology & Services Private Limited
#36/5, Hustlehub One East, Somasandrapalya, 27th Main Rd, Sector 2, HSR Layout, Bengaluru, Karnataka 560102
Products 
Company
Legal
Support
Car Insurance 
Bike Insurance
Health Insurance
Group Health Insurance
Travel Insurance
Life Insurance
