Key Takeaways on Section 194DA TDS on Life Insurance Maturity
- Section 194DA mandates TDS on life insurance maturity or surrender proceeds that are not exempt under Section 10(10D) of the Income Tax Act.
- The TDS rate is 2% on the income component (maturity proceeds minus total premiums paid) for payments made on or after October 1, 2024. The rate was reduced from 5% by the Finance Act 2024.
- TDS is deducted only when the aggregate payout in a financial year exceeds ₹1,00,000.
- Section 10(10D) exempts maturity proceeds if the annual premium does not exceed 10% of the sum assured (for policies issued on or after April 1, 2012). For older policies (April 1, 2003 – March 31, 2012), the limit is 20%.
- For ULIP policies issued on or after February 1, 2021, the exemption limit is ₹2.5 lakh aggregate premium per year.
- For non-ULIP policies issued on or after April 1, 2023, the exemption limit is ₹5 lakh aggregate premium per year.
- Death benefits are always 100% tax-free under Section 10(10D) – no TDS applies.
- If TDS is deducted but your total income is below the taxable limit, you can claim a refund by filing your ITR.
Most policyholders assume that any amount received on maturity of a life insurance policy is completely tax-free. That assumption holds true only when the policy meets strict conditions laid down under Section 10(10D) of the Income Tax Act.
If the annual premium crosses the prescribed percentage of sum assured, the maturity proceeds become taxable, and the insurance company deducts TDS under Section 194DA before releasing the payout. This guide explains everything you need to know about Section 194DA TDS on life insurance maturity proceeds – the rate, applicability, exemptions, how to claim a refund, and how to report it in your ITR.
Looking for expert help with section 194DA, TDS on life insurance maturity, 194DA TDS rate, section 10(10D) exemption, TDS on LIC maturity? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
What is Section 194DA?
Section 194DA of the Income Tax Act, 1961 mandates the deduction of Tax at Source (TDS) on payments made under a life insurance policy to a resident. This includes maturity proceeds, surrender values, and bonuses where the policy does not qualify for exemption under Section 10(10D).
Who Must Deduct TDS?
The life insurance company – whether LIC, HDFC Life, ICICI Prudential, or any other insurer – must deduct TDS at the time of making the payment to the policyholder.
When Does TDS Apply?
TDS under Section 194DA applies when all three of the following conditions are met:
| Condition | Details |
|---|---|
| 1. Payment to a resident | The policyholder must be a resident of India |
| 2. Payment is not exempt under Section 10(10D) | The policy does not meet the exemption conditions (explained below) |
| 3. Aggregate payout exceeds ₹1,00,000 | The total of all payouts (maturity, surrender, bonus) in a financial year exceeds ₹1 lakh |
TDS Rate Under Section 194DA
The TDS rate under Section 194DA has been reduced from 5% to 2% effective from October 1, 2024, as per the Finance Act 2024.
| Period | TDS Rate |
|---|---|
| Before October 1, 2024 | 5% |
| On or after October 1, 2024 | 2% |
Important: TDS is on the Income Component, Not the Full Payout
TDS is deducted only on the income portion of the payout – not on the entire maturity amount.
Formula:
Income Component = Total Payout – Total Premiums Paid
The insurer deducts 2% TDS on this income component.
Example Calculation
| Particulars | Amount |
|---|---|
| Maturity Proceeds | ₹15,00,000 |
| Total Premiums Paid | ₹10,00,000 |
| Income Component | ₹5,00,000 |
| TDS @ 2% | ₹10,000 |
The insurance company deducts ₹10,000 as TDS and pays the balance ₹14,90,000 to the policyholder.
If PAN is Not Furnished
If the policyholder does not provide their PAN, TDS is deducted at 20% under Section 206AA.
Section 10(10D) Exemption: When No TDS is Deducted
The most important question is: Does your policy qualify for exemption under Section 10(10D)?
If yes, the maturity proceeds are fully tax-free, and no TDS is deducted under Section 194DA.
The exemption depends on the premium-to-sum-assured ratio and the policy issue date.
Exemption Conditions Under Section 10(10D)
| Policy Issue Date | Premium Limit for Exemption | TDS Applicability |
|---|---|---|
| Before April 1, 2003 | No premium limit – fully exempt | ❌ No TDS |
| April 1, 2003 – March 31, 2012 | Annual premium ≤ 20% of sum assured | ❌ No TDS if condition met |
| April 1, 2012 – March 31, 2023 | Annual premium ≤ 10% of sum assured | ❌ No TDS if condition met |
| On or after April 1, 2023 (Non-ULIP) | Aggregate annual premium ≤ ₹5 lakh | ❌ No TDS if condition met |
| On or after February 1, 2021 (ULIP) | Aggregate annual premium ≤ ₹2.5 lakh | ❌ No TDS if condition met |
Important Rules for ULIPs
For Unit Linked Insurance Plans (ULIPs) issued on or after February 1, 2021, the exemption under Section 10(10D) is available only if the aggregate premium in any financial year does not exceed ₹2.5 lakh. If the premium exceeds this limit, the maturity proceeds are taxable, and TDS under Section 194DA applies.
Important Rules for Non-ULIP Policies Issued After April 1, 2023
For traditional life insurance policies (non-ULIP) issued on or after April 1, 2023, the exemption is available only if the aggregate premium in any financial year does not exceed ₹5 lakh. If the premium exceeds ₹5 lakh, the maturity proceeds are taxable, and TDS applies.
Death Benefits – Always Exempt
Death benefits received under a life insurance policy are always 100% tax-free under Section 10(10D). No TDS is deducted under Section 194DA on death claims.
Tax Treatment of Non-Exempt Maturity Proceeds
If the policy does not qualify for exemption under Section 10(10D):
- TDS is deducted by the insurance company under Section 194DA at 2% on the income component
- The income component (maturity proceeds – total premiums paid) is taxable under the head "Income from Other Sources"
- The taxable income is added to your total income and taxed at your applicable income tax slab rate
Example: Taxable Maturity with TDS
| Particulars | Amount |
|---|---|
| Policy Issued | April 1, 2015 |
| Sum Assured | ₹8,00,000 |
| Annual Premium | ₹1,00,000 (12.5% of sum assured – exceeds 10% limit) |
| Total Premiums Paid (20 years) | ₹20,00,000 |
| Maturity Proceeds | ₹30,00,000 |
| Income Component | ₹10,00,000 |
| TDS @ 2% | ₹20,000 |
| Taxable Income | ₹10,00,000 (taxed at slab rate) |
If the policyholder is in the 30% slab, the tax on ₹10,00,000 is ₹3,00,000. The TDS of ₹20,000 is claimed as a credit, and the balance ₹2,80,000 is payable.
How to Claim TDS Refund Under Section 194DA
If TDS has been deducted under Section 194DA but your total income is below the taxable limit, or if your tax liability is less than the TDS deducted, you can claim a refund by filing your Income Tax Return (ITR).
Step-by-Step Process
Step-by-Step Guide
How to Claim TDS Refund Under Section 194DA
Follow these steps to claim your TDS refund
Check Form 26AS
Log in to the Income Tax e-Filing portal and download Form 26AS. Verify that the TDS deducted under Section 194DA is reflected in your Form 26AS and AIS.
Form 26ASFile Your ITR
File your Income Tax Return using the correct ITR form (ITR-1, ITR-2, or ITR-3 depending on your income sources).
File ITRReport the Income
Report the income component (maturity proceeds minus total premiums paid) under the head 'Income from Other Sources'.
Report IncomeClaim TDS Credit
Claim the TDS credit under Section 194DA in the appropriate schedule. The system will automatically compute the refund if TDS exceeds your tax liability.
Claim TDSE-Verify Your Return
Complete e-verification of your ITR using Aadhaar OTP, net banking, or other approved methods.
E-VerifyTrack Refund Status
Track your refund status on the e-Filing portal under 'View Filed Returns'.
TrackSource: Income Tax Department e-Filing portal (incometaxindia.gov.in)
Documents to Keep Ready
- Policy document showing sum assured and premium details
- Premium payment receipts or bank statements
- Maturity letter from the insurance company
- Form 26AS and AIS showing TDS deducted
- Form 16A (TDS certificate) if issued by the insurer
Can You Avoid TDS Under Section 194DA?
Yes, in certain cases you can avoid TDS under Section 194DA:
1. Submit Form 15G or Form 15H
If your total income is below the taxable limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens aged 60 years or above) to the insurance company. This self-declaration requests the deductor not to deduct TDS.
Conditions for submitting Form 15G/15H:
- Your total income for the financial year is below the taxable limit
- The aggregate payout does not exceed the threshold limit (₹1,00,000)
2. Obtain a Lower Deduction Certificate (Section 197)
If your tax liability is lower than the standard TDS rate, you can apply to the Income Tax Department for a Lower Deduction Certificate under Section 197. The certificate specifies the rate at which TDS should be deducted.
3. Ensure Your Policy Qualifies for Section 10(10D) Exemption
The most effective way to avoid TDS is to ensure your policy meets the Section 10(10D) exemption conditions. If the annual premium does not exceed the prescribed percentage of sum assured (10% for post-2012 policies), no TDS is deducted.
How TDS is Reflected in Form 26AS and AIS
The TDS deducted under Section 194DA is reflected in:
- Form 26AS – under the TDS section
- Annual Information Statement (AIS) – under the TDS/TCS information section
The AIS will show the TDS amount under Section 194DA, and the policyholder can view and verify this before filing their ITR.
Section 194DA vs Section 10(10D): Key Differences
| Aspect | Section 194DA | Section 10(10D) |
|---|---|---|
| Purpose | TDS on life insurance payouts | Exemption from tax on life insurance proceeds |
| Applicability | Applies when payout is not exempt under 10(10D) | Applies when policy meets premium-to-sum-assured conditions |
| Rate | 2% on income component (post-Oct 1, 2024) | 100% exemption from tax |
| Trigger | Payout exceeds ₹1,00,000 in a financial year | Condition-based – premium ≤ 10% of sum assured (post-2012) |
| Who Does It | Insurance company deducts TDS | Policyholder gets tax-free proceeds |
Under the Income Tax Act, 2025
The Income Tax Act, 2025 has been implemented from April 1, 2026. Key points:
- Section 194DA has been renumbered in the new Act
- The TDS rate of 2% continues
- The exemption conditions under Section 10(10D) continue under the corresponding provision in the new Act
Common Mistakes to Avoid
1. Assuming all insurance maturity proceeds are tax-free
Maturity proceeds are tax-free only if the policy meets the Section 10(10D) conditions. If the annual premium exceeds 10% of sum assured (post-2012 policies), the proceeds are taxable.
2. Not reporting the maturity proceeds in ITR
Even if the maturity is tax-free under Section 10(10D), it must be reported in Schedule EI (Exempt Income) of the ITR.
3. Not claiming TDS credit
If TDS has been deducted under Section 194DA, you must claim the credit in your ITR. Failure to do so means losing the tax already deducted.
4. Not checking if PAN is linked
If PAN is not furnished to the insurer, TDS is deducted at 20% instead of 2%. Always provide your PAN to the insurance company.
5. Filing the wrong ITR form
If you have foreign assets or other complex income, ensure you file the correct ITR form (ITR-2 or ITR-3). ITR-1 may not be sufficient.
Where Tax Garden Helps
Understanding Section 194DA and Section 10(10D) can be confusing. Many policyholders miss the TDS credit or fail to report the maturity proceeds correctly in their ITR.
Tax Garden's CAs help you:
- Determine if your policy qualifies for Section 10(10D) exemption
- Calculate the taxable income component correctly
- Claim TDS refund under Section 194DA
- File your ITR with the correct schedules (Schedule EI, Schedule OS)
- Respond to any notices from the Income Tax Department
Looking for expert help with section 194DA, TDS on life insurance maturity, 194DA TDS rate, section 10(10D) exemption, TDS on LIC maturity? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Section 194DA TDS on Life Insurance Maturity: Frequently Asked Questions
What is the TDS rate under Section 194DA for life insurance maturity?
The TDS rate under Section 194DA is 2% on the income component (maturity proceeds minus total premiums paid) for payments made on or after October 1, 2024. The rate was reduced from 5% by the Finance Act 2024. Verify current rates on incometaxindia.gov.in.
When is TDS deducted under Section 194DA?
TDS is deducted when the life insurance policy does not qualify for exemption under Section 10(10D) and the aggregate payout in a financial year exceeds ₹1,00,000. If the payout is ₹1,00,000 or less, no TDS is deducted.
What is Section 10(10D) and when does it apply?
Section 10(10D) exempts life insurance maturity proceeds from tax. It applies when the annual premium does not exceed 10% of the sum assured (for policies issued on or after April 1, 2012). For older policies (April 1, 2003 – March 31, 2012), the limit is 20%. Verify current rules on incometaxindia.gov.in.
What is the premium limit for ULIPs under Section 10(10D)?
For ULIPs issued on or after February 1, 2021, the exemption under Section 10(10D) applies only if the aggregate annual premium does not exceed ₹2.5 lakh. If the premium exceeds this limit, the maturity proceeds are taxable, and TDS under Section 194DA applies.
What is the premium limit for non-ULIP policies issued after April 1, 2023?
For traditional life insurance policies (non-ULIP) issued on or after April 1, 2023, the exemption under Section 10(10D) applies only if the aggregate annual premium does not exceed ₹5 lakh. If the premium exceeds ₹5 lakh, the maturity proceeds are taxable, and TDS under Section 194DA applies.
Are death benefits taxable under Section 194DA?
No. Death benefits received under a life insurance policy are always 100% tax-free under Section 10(10D). No TDS is deducted under Section 194DA on death claims.
Can I avoid TDS under Section 194DA?
Yes. You can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the insurance company if your total income is below the taxable limit. You can also obtain a Lower Deduction Certificate under Section 197 if your tax liability is lower than the standard TDS rate.
How do I claim a refund of TDS deducted under Section 194DA?
File your Income Tax Return (ITR) and claim the TDS credit in the appropriate schedule. If the TDS deducted exceeds your tax liability, the excess will be refunded after the ITR is processed.
Is the maturity proceeds taxable if the policy was issued before April 1, 2003?
For policies issued before April 1, 2003, the maturity proceeds are fully tax-free under Section 10(10D) and no TDS is deducted under Section 194DA.
What happens if I don't provide my PAN to the insurance company?
If you do not provide your PAN, TDS is deducted at 20% under Section 206AA instead of 2%. Always provide your PAN to avoid higher TDS deduction.
Sources: Income Tax Act, 1961, Sections 10(10D), 194DA, 206AA; Finance Act 2024 (TDS rate reduction from 5% to 2%); Income Tax Department e-Filing portal (incometaxindia.gov.in); Bajaj Finserv Markets; Quicko; TaxGarden. Verify current rates, thresholds, and exemption conditions on incometaxindia.gov.in before acting, as rules may be updated periodically. This article is general information on Section 194DA TDS on life insurance maturity and not a substitute for professional advice.
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