The provisions relating to TDS on payments under life insurance policies have been restructured under the Income-tax Act, 2025. The earlier Section 194DA of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 8(i)], effective from 1st April, 2026.
This restructuring retains the provisions relating to deduction of tax at source on non-exempt life insurance payouts while incorporating updated TDS rates as per recent amendments.
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(1)
- Table Reference: Table: Sl. No. 8(i)
- Nature of Payment: Any sum received under a life insurance policy, including bonus (other than exempt amounts)
- Earlier Section (IT Act 1961): Section 194DA
- Return Form: 26Q
- Code (for return filing): 1030
Applicability of TDS on Life Insurance Payments
TDS is required to be deducted on payments made under a life insurance policy where such proceeds are not exempt under Section 10(10D). This includes maturity proceeds and bonus amounts received by the policyholder.
Deductor and Deductee
Deductor:
- Any person responsible for making payment under a life insurance policy
Deductee:
- Resident policyholder receiving such payment
- In case of non-resident, applicable provisions shall apply
Time of Deduction
TDS shall be deducted at the time of payment of the maturity proceeds under the life insurance policy.
Rate of TDS
- 2% on the taxable portion of the maturity proceeds
Threshold Limit
TDS shall be deducted only when the prescribed limit is exceeded:
- ₹1,00,000 in a financial year
Basis of TDS Deduction
- Taxable amount = Maturity proceeds – Total premium paid
- TDS is applied only on the net income component
Cases Where TDS is Not Required
TDS under Section 393(1) [Table: Sl. No. 8(i)] is not applicable in the following cases:
- If the maturity proceeds qualify for exemption under Section 10(10D), no TDS is required
- If the recipient submits a declaration in Form 121, TDS deduction can be avoided
Exemption Conditions (Life Insurance Policies)
Amounts received under life insurance policies are exempt subject to certain conditions. However, exemption is not available in the following cases:
- Amount received under Section 80DD(3) or Section 80DDA(3)
- Amount received under a Keyman Insurance Policy
Policies where premium exceeds prescribed percentage of sum assured:
- 20% (for policies issued between 01.04.2003 to 31.03.2012)
- 10% (for policies issued after 01.04.2012)
- The LIC policy was issued after 1st April 2013 for a person with a disability (under Section 80U) or for ailments covered under Section 80DDB, and the premium exceeds 15% of the sum assured
- There is no maximum limit for exemption under Section 10(10D), provided that the above conditions are met.
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