Section 194DA TDS & ITR-2 Filing Guide for FY 2024-25

When it comes to life insurance policy proceeds, not all payouts are tax-free. The Income Tax Act has a specific section—Section 194DA—that governs the tax deduction at source (TDS) on such sums. If you're a policyholder, an insurance agent, or even an insurer, it’s essential to understand when TDS applies, how much is deducted, and how to report it correctly in your income tax return (ITR-2).

Let’s break it down in simple terms, especially with the recent changes announced in the Budget 2024 and 2025.

Quick Summary: What’s New?

Two different sections of the Income Tax Act deal with TDS related to life insurance:

• Section 194D: Applies to commissions paid to insurance agents.

• Section 194DA: Applies to life insurance policy payouts that are not exempt under Section 10(10D).

🆕 Latest Updates:

These updates are designed to ease cash flow pressure on taxpayers and simplify compliance.

What is Section 194DA?

Section 194DA mandates that insurance companies deduct TDS when they make payments to a policyholder under a life insurance policy that is not fully exempt under Section 10(10D).

When is TDS under Section 194DA Applicable?

• The policy maturity amount is not exempt under Section 10(10D).

• The total amount paid exceeds ₹1,00,000 in a financial year.

When is TDS under 194DA Not Required?

• The policy is exempt under Section 10(10D) (such as policies with sums assured 10x the premium).

• The total payout in a financial year is ₹1,00,000 or less.

TDS Rate under Section 194DA

TDS is deducted only on the profit portion (i.e., maturity amount minus total premiums paid).

How is Section 194DA Different from Section 194D?

Reporting 194DA Income in ITR-2

If your life insurance maturity proceeds are not exempt, you need to report them under “Income from Other Sources” in ITR-2.

📋 How to Report in ITR-2:

1. Go to the ‘Schedule OS’ (Other Sources) section.

2. Enter the net amount (Total maturity proceeds – Premiums paid).

3. In the ‘TDS Schedule’, add the details of TDS deducted by the insurer.

4. Match with your Form 26AS or Annual Information Statement (AIS).

5. File the return. If excess TDS was deducted, you can claim a refund.

Pro Tips for Taxpayers

• Always collect your TDS certificate (Form 16A) from the insurer.

• Track your TDS in Form 26AS or AIS before filing.

• Keep records of all premiums paid for calculation of net taxable income.

• Even if TDS is not deducted, but the income is taxable, you must disclose and pay tax.

Frequently Asked Questions (FAQs)

1. What is Section 194DA in simple terms?

It mandates TDS on maturity proceeds of life insurance policies that are not fully tax-exempt.

2. What is the current TDS rate under Section 194DA?

• Until 30 Sept 2024: 5%

• From 1 Oct 2024: 2%

3. When is TDS not deducted under 194DA?

When:

• The maturity amount is exempt under Section 10(10D).

• The total payment in a financial year does not exceed ₹1,00,000.

4. Can I use ITR-1 to report this income?

No. You must use ITR-2 if you have income under Section 194DA.

5. How do I claim a refund for TDS under 194DA?

Report the income in ITR-2, disclose the TDS amount, and the system will automatically calculate and allow a refund if applicable.

Conclusion

Section 194DA is an important provision to be aware of if you receive maturity proceeds from life insurance policies. With the updated TDS rate of 2% from October 2024, the tax burden has slightly eased, but compliance remains essential.

If you're a policyholder, remember:

• Check if your policy is exempt under Section 10(10D).

• Ensure the insurer deducts the correct TDS.

• File your return using the correct ITR form.

• Maintain proper documentation to support your claims.

Tax planning is not just about saving taxes—it’s also about staying compliant. A clear understanding of TDS rules can save you from future hassles, notices, or refund delays.