(CA FINAL STUDENT)
24 January 2021
It will be taxable under the head other sources since it is deemed to be arisen in india .
15.3.9 Payment in respect of life insurance policy [Section 194DA]
(1) Taxability of sum received under a life insurance policy
Under section 10(10D), any sum received under a life insurance policy, including the sum
allocated by way of bonus on such policy is exempt subject to fulfillment of conditions
specified under the said section.
Consequently, the sum received under a life insurance policy which does not fulfill the
conditions specified under section 10(10D) is taxable.
(2) Rate of TDS
For ensuring a proper mechanism for reporting of transactions and collection of tax in respect
of sum paid under life insurance policies which are not exempt under section 10(10D), section
194DA provides for deduction of tax at the rate of 5% on the amount of income comprised
therein i.e., after deducting the amount of insurance premium paid by the resident assessee
from the total sum received.
In order to provide more funds at the disposal of the taxpayers for dealing with the economic
situation arising out of COVID-19 pandemic, the rate of TDS u/s 194DA has been reduced
from 5% to 3.75% (i.e., ¾th of the specified rate) for the period from 14th May, 2020 to 31st
March, 2021 [Section 197B].
(3) Threshold limit
Tax deduction is required only if the payment or aggregate payment of under a life insurance
policy, including the sum allocated by way of bonus in a financial year to an assessee is
` 1,00,000 or more. This is for alleviating the compliance burden on the small tax payers.