From 1st October 2014, your insurer will deduct tax at source of 2 per cent from maturity proceeds of a life insurance policy if the premium paid is more than 10 per cent of the sum assured.
Currently, under section 10(10D) of the Income Tax Act, any sum received from a life insurer is not taxable if the premium payable is upto 10 % of the sum assured. Tax would be payable as per your tax slab if the premium exceeded the 10 per cent amount. However, since there was not TDS, several assesses avoided the tax.
The finance bill 2014 states "In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempted under section 10(10D) of the Act, it is proposed to insert a new section in the Act to provide for deduction of tax at the rate of 2 per cent on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D) of the Act."BUDGET SPEECH: Full text | Video
It has also been proposed that no deduction under this provision shall be made if the aggregate sum paid in a financial year to an assessee is less than Rs 1 lakh.
In 2012-2013 the threshold of premium payable was reduced to 10 per cent of the actual capital sum assured from 20 per cent. #budgetbt Tweets
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