5 things to know New income tax rule on insurance maturity proceeds
September, 16th 2019
From September 1 this year, the government introduced a new set of income tax rules that included higher TDS or tax deducted on source on life insurance in specific cases. Other changes included TDS on cash withdrawals exceeding ?1 crore in aggregate in a year from finance institutions. In case of property transactions the definition of immovable property has been widened to include charges like club membership fee and car parking fee for TDS levy.
Here are 5 things to know about new income tax rules on insurance proceeds:
1) The government has amended Section 194DA which requires the deductor to deduct TDS at the rate of 5% if the life insurance maturity proceeds received are taxable in your hands. It also includes sum received by way of bonus. Section 194DA relates to insurance policy payments that are not exempted under the Section 10(10D. Earlier, the TDS levy was 1%.
2) No TDS is deductible if the sum payment is less than ?1 lakh or if the sum is received on the death of the insured person.
3) Under Section 10 (10D), insurance policy maturity proceeds are exempted from income tax if sum assured in a life insurance policy is at least 10 times the annual premium. For policies issued before April 2012, the premium must be less than 20% of the sum assured to get the tax benefit on maturity.
4) Aarti Raote, partner at Deloitte India, said: "As per the old provisions, any payment in respect of life insurance policy, to a resident person, was subject to TDS at the rate of 1% percent under Section 194DA. The tax was deducted under this provision at the time of payment, if the sum payable exceeded Rs. 1 lakh. Tax was not required to be deducted if the amount payable under an insurance policy is exempt from tax under Section 10(10D), or if the sum is received on the occasion of death of the insured person."
5) "The Finance Bill 2019 proposed an amendment to Section 194DA which requires the deductor to deduct tax at the rate of 5% on the income comprised (in contrast to 1% on the gross amount)," she added.