All You Need To Know About Section 194DA

by SMCIB on Friday, 21 June 2024

All You Need To Know About Section 194DA

Ever wondered why you keep a first aid kit at home? There are days when you are busy cooking, and you accidentally cut yourself. Or, your toddler might slip on a toy and scrape her knee. And you immediately run looking for a first-aid kit to apply an ointment or a bandaid. By having this kit, you don’t expect someone to get hurt, but you want to be safe, just in case. A life insurance policy also works the same way for your family. It ensures that your family is financially stable by providing a lump sum in case something unexpected happens.

When you talk about getting insurance payouts, it is essential to understand a part of the Income Tax Act called Section 194DA. This section basically says that when your life insurance policy pays out, the government deducts a portion of it as tax. This ensures that everyone pays the right amount of tax on their insurance payouts. For more insights, let's dive deeper into this in the article below-

What Does Section 194DA Say?

The Income Tax Act of 1961 has a provision called Section 194DA. This section deals with the taxation of life insurance payments. According to this section, if a life insurance plan is not exempt under Section 10(10D) of the Income Tax Act, any payment made towards that policy is subject to Tax Deducted at Source (TDS).

Key Points Of Section 194DA

Some crucial factors that you should know under Section 194DA are -

  • TDS On Life Insurance Payouts
    If Section 10 (10D) does not exempt the payout received from a life insurance policy, it needs to be taxed at the source.
  • Legal Duty
    The payer must deduct and submit the TDS to the government as per the law. If you don’t follow these rules, it can lead to fines and interest charges.
  • Tax Strategy
    Grasping Section 194DA can aid taxpayers in managing their tax responsibilities effectively and steering clear of compliance issues.
  • Exemptions and Deductions
    Taxpayers should be familiar with the exemptions and deductions provided under this section to ensure they don't pay more taxes than necessary.

Importance For Taxpayers

Understanding Section 194DA is crucial for several reasons -

  • Staying Compliant
    By following and staying updated with Section 194DA, you can safeguard yourself against legal and monetary repercussions.
  • Strategic Financial Planning
    Being informed about this section enables more effective tax planning and cleverly managing your finances.
  • Maximising Tax Savings
    Understanding exemptions and deductions empowers taxpayers to make the most of their insurance tax benefits.

Main Provisions Of Section 194DA

Understanding a few significant provisions under Section 194DA -

  • TDS Rate
    Under Section 194DA, the Tax Deducted at Source (TDS) rate is 5% if the payee provides their PAN. However, If you do not provide the PAN, the TDS rate increases to 20%.
  • Threshold Limit
    TDS applies only if the payment towards the life insurance policy exceeds Rs. 1,00,000 in a financial year.
  • Deduction Time
    The insurer deducts TDS when paying the policy amount or any sum under the policy, whichever comes first.
  • Exceptions
    TDS does not apply to payments for life insurance policies that qualify for exemption under Section 10(10D) of the Income Tax Act.

Who Is Eligible Under Section 194DA?

Section 194DA concerns Tax Deducted at Source (TDS) on life insurance payouts. The following are eligible under this section -

  • The Payee
    Individuals who receive payouts from a life insurance policy, except those exempt under Section 10(10D).
  • The Payer
    This includes the life insurance company or any other entity responsible for distributing payments under a life insurance policy.

When To Deduct TDS Under Section 194DA?

TDS takes place at the earlier of these two instances -

  • At The Time Of Credit
    The insurer, the payer, deducts TDS when they credit the commission to the payee’s account.
  • At The Time Of Payment
    The insurance company also deducts TDS when they make the actual payment, regardless of whether it is in cash, cheque, draft, or any other mode.

Difference Between Section 194D And Section 194DA

Here’s a comparison between Section 194D and Section 194DA -


Section 194D

Section 194DA


It deals with the deduction of TDS on the insurance commission received for procuring insurance business.

It pertains to payments related to life insurance policies.

Who Shall Deduct?

This section applies to any individual or entity responsible for disbursing income to a resident as remuneration or reward, whether in the form of commission or otherwise, for the purpose of soliciting or procuring insurance business. This includes activities related to the continuation, renewal, or revival of insurance policies.

This section applies to any individual or entity responsible for making payments to a resident in the form of a sum (maturity amount) under a life insurance policy, including any bonus allocated on such policy. However, it does not apply to the amount that is not included in the total income under clause (10D) of section 10.

When to Deduct

The insurer should deduct TDS either when they credit such income to the payee's account or when they make the payment in cash or through modes such as cheques, drafts, or any other method, whichever happens first.

TDS should be deducted at the time of payment.



Rs. 15,000

Rs. 1,00,000


The applicable TDS rates for different categories are as follows -

  • For individuals or Hindu Undivided Families (HUF), it is 5%
  • For domestic companies, it is 10%
  • In cases where the payee does not provide a PAN, the TDS rate is 20%.

The TDS rate of 5% applies only to the income portion of the life insurance policy. This refers to the amount that the payee will receive on maturity after deducting the premium paid.


If the commission paid is within the threshold of Rs. 15,000, the payee has the option to submit a self-declaration using either Form 15G or Form 15H to claim exemption from TDS.

Specific conditions and rates apply to amounts received under section 80DD(3) or 80DDA(3) for the following -

  • For LIC policies purchased after April 1, 2003, but on or before March 31, 2012, with a premium paid not exceeding 20% of the sum assured.
  • For LIC policies purchased on or after April 1, 2012, with a premium paid not exceeding 10% of the sum assured amount.
  • For plans issued on or after the 1st of April, 2013, with a premium paid not exceeding 15% of the sum assured. This condition applies only if the person suffers from a disability as per Section 80U and 80DDB.

Rate Of TDS Under Section 194DA

The TDS rate stands at 5% and applies to the income part of your life insurance policy. It is deducted from the maturity amount you receive after subtracting the premiums you have paid for the policy. However, if you have not provided your PAN (Permanent Account Number), the TDS rate could be higher.

Procedure For Deducting & Depositing TDS Under Section 194DA

Here are the steps that you need to follow -

Step 1: Obtain PAN From Payee
It is important to have the payee's valid PAN (Permanent Account Number).

Step 2: Deduct TDS
When it comes to TDS, a deduction of 5% should be made only on the income portion of the payment made towards a life insurance policy. However, this deduction is applicable only if the payment amount exceeds Rs. 1 lakh in a financial year.

Step 3: Payment Upon Maturity
There is an applicable 5% TDS deduction when the maturity amount exceeds Rs. 1 lakh.

Step 4: TDS Deposit
The insurer needs to deposit the TDS deducted with the government within 30 days from the last day of the month when the deduction was made.

Step 5: Issuing TDS Certificate
The payer should provide you, the payee, with a TDS certificate in Form 16A.

Adhering to these TDS provisions under Section 194DA is crucial for the payer to avoid facing penalties and interest charges.

Exemptions Under Section 194 DA

The following criteria are exempt under this Section -

  1. Any sum received under sections 80DD(3).
  2. LIC policies purchased between April 1, 2003, and March 31, 2012, where the premiums do not exceed 20% of the total guaranteed amount.
  3. LIC policies bought on or after April 1, 2012, with premiums not exceeding 10% of the sum assured.
  4. Plans issued on or after April 1st, 2013, with premiums not exceeding 15% of the total assured, qualify for exemption if the individual also has a disability as defined in Sections 80U and 80DDB.

Deductions Under Section 194 DA

Under Section 194DA, the payer must deposit the TDS deducted from the government within 30 days from the end of the month when the deduction took place. You can claim credit for this TDS when filing your income tax return.

Compliance Requirements Under Section 194 DA

Here are the compliance requirements under Section 194DA -

  • Deposit And Deduction  Of TDS
    The payer must deposit the deducted TDS with the government within 30 days from the end of the month when the deduction happened. You can claim credit for this TDS when filing your income tax return.
  • Getting TDS Certificate
    The payer has to issue a TDS certificate to the payee under Form 16A within a span of 15 days starting from the due date of depositing the TDS with the government.
  • TDS Return Filing
    The payer must file a quarterly TDS return under Form 26Q with the government, providing details of the TDS deducted and deposited.

Penalties For Non-Compliance With Section 194 DA

Failing to comply with Section 194DA can result in penalties and interest charges -

  • Interest Charges
    Payers who do not deposit TDS within the due date face an interest rate of 1.5% per month or part thereof until the deposits are completed.
  • Late TDS Return Filing Penalty
    If the TDS return is not filed by the due date, the payer incurs a penalty of Rs. 200 per day until the return is submitted.
  • Penalty For Providing Incorrect Information
    Submitting incorrect information in the TDS return can lead to penalties ranging from Rs. 10,000 to Rs. 1 lakh.

Payers must adhere to Section 194DA to prevent penalties and interest charges. This is because non-compliance can lead to extra tax liability for the payee, who may need to pay additional tax to cover the TDS not deducted by the payer. Hence, it is vital for both payers and payees to follow Section 194DA. Payers should ensure timely deduction and deposit of TDS to evade penalties or interest. On the other hand, payees should claim TDS credit when filing their income tax return to prevent extra tax liability.

TDS Certificate Under Section 194DA

All individuals responsible for deductions must issue TDS certificates before the due date, except for salary deductions.

Timeline for TDS Certificates for Insurance Commissions

For Non-Government Deductions

  • From April to June: Within July 30th
  • From July to September: Within October 30th
  • From October to December: Within January 30th
  • From January to March: Within May 30th

For Government Deductions

  • From April to June: Within August 15th
  • From July to September: Within November 15th
  • From October to December: Within February 15th
  • From January to March: Within May 30th

To Conclude,

Section 194DA ensures that tax is deducted at source on certain life insurance payouts. It requires the payer to deduct TDS if the payout exceeds Rs. 1 lakh in a financial year, helping to streamline tax collection and compliance. You should be aware that you can claim credit for the deducted TDS when filing your income tax returns. Both payers and payees must understand and adhere to these rules to avoid penalties and interest. In short, Section 194DA plays an important role in maintaining tax compliance and ensuring transparency in life insurance transactions.


Section 194DA was introduced in 2014.

If you fail to provide your PAN details, you will face a 20% TDS rate under Section 194DA of the Income Tax Act.

No, TDS is applicable to the maturity amount you receive from the corporation, not the premiums you pay.

No, whether issued by Indian or foreign insurance companies, TDS under Section 194DA applies to all life insurance policies.

Yes, you can adjust the TDS deducted under Section 194DA against your final tax liability when filing your income tax return.

No, TDS under Section 194DA applies only to payouts received during the policy term. Maturity proceeds of life insurance plans are not subject to TDS under this section.

Yes, TDS under Section 194DA applies only if the payout during the policy term exceeds Rs. 1 lakh in a financial year. No TDS is required for payments less than Rs. 1 lakh.

The person making the payment to you, the policyholder, must deduct TDS. This includes payments made as remuneration, commission, or any other form of reward.


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