Section 194 DA of the Income Tax Act 1961 deals with the taxation of life insurance payments. Unless the policy is exempt under Section 10(10D) of the Income Tax Act, any payment toward a life insurance policy must be subject to tax at source (TDS).
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Section 194DA of the Income Tax Act of 1961 is a provision related to Tax Deducted at Source (TDS) in India. It specifically applies to payments made under life insurance policies. Understanding this section is important as it imposes a legal obligation on the payer to deduct and deposit the TDS with the government. Non-compliance with the section provisions can attract penalties and interest.
As a taxpayer, you must also know the exemptions and deductions in the section. This is to ensure you don't pay more tax. Let’s understand some of the key provisions of Section 194 DA:
The TDS rate under Section 194 DA may vary depending upon the policy and their premium paid.
TDS is applicable only if the payment towards the life insurance policy exceeds Rs. 1 lakh in a financial year.
TDS is to be deducted at the time of payment of the policy amount or any sum under the policy, whichever is earlier.
TDS is not applicable to payments made towards life insurance policies exempt under Section 10(10D) of the Income Tax Act.
CRITERIA | SECTION 194 D | SECTION 194 DA |
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 procedure for deducting and depositing TDS under Section 194 DA is as follows:
The payer should obtain a valid PAN from the payee.
The payer will be deducted TDS at the rate of 5% only on the income part of the payment made towards the life insurance policy if it exceeds Rs. 1 lakh in a financial year.
If the maturity amount is above Rs. 1 Lakh, the maturity proceeds paid after deducting 5% TDS.
The TDS should be deposited with the government within 30 days of the end of the month the deduction was made.
The payer should issue a TDS certificate to the payee in Form 16A.
It is important for the payer to comply with the TDS provisions under Section 194 of DA to avoid penalties and interest.
Exemptions available under Section 194 DA, TDS are not applicable to payments made towards life insurance policies exempt under Section 10(10D) of the Income Tax Act. These exemptions include.
Any sum received under a life insurance policy, including bonus, that is exempt under Section 10(10D) is not subject to TDS.
Any sum received by a nominee or legal heir on the death of the policyholder, including a bonus, is exempt under Section 10(10D) and not subject to TDS.
Any sum received as the surrender value of the policy, including bonus, is exempt under Section 10(10D) and not subject to TDS.
The compliance requirements under Section 194 DA 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 Rs. 200 per day until the return is filed.
If the payer provides incorrect information in the TDS return, a penalty ranging from Rs. 10,000 to Rs. 1 lakh can be levied.
It is mandatory for payers to comply with Section 194 DA to avoid penalties and interest. Non-compliance can also result in additional tax liability for the payee, who may have to pay an additional tax to make up for the TDS not deducted by the paye. Adhering to Section 194 DA is a necessity for both payers and payees. Payers must ensure TDS is deducted and deposited on time to avoid penalties or interest. Payees must ensure that they claim credit for the TDS deducted while filing their income tax return to avoid additional tax liability. Non-compliance with Section 194 DA can attract penalties and interest, resulting in additional tax liability for both payers and payees.
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.