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‘5% TDS on life policy gains fair’

A provision in the finance bill has revised the TDS on policies that do not qualify for exemption from income tax to 5% of the gain rather than 1% on the total maturity benefit.

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Jul 11, 2019, 10.55 AM IST
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Insurers said they are comfortable with the fact that TDS is linked to the concept of gain and not the entire amount.
(This story originally appeared in on Jul 11, 2019)
Mumbai: Insurers say that tax deduction at source (TDS) on taxable life policies has become more equitable after the Budget. Life insurance policies that do not qualify for tax breaks, such as those without life cover that is at least 10 times the premium amount, will face TDS only on gains following changes proposed in the Union Budget. A provision in the finance bill has revised the TDS on policies that do not qualify for exemption from income tax to 5% of the gain rather than 1% on the total maturity benefit.

“In the earlier regime, TDS was applied on the entire maturity benefit, which included both the premium paid by the policyholders and the gains that accrued to them. What has been proposed in the Budget is good for policyholders. Now TDS will be applied only on the gains that have ensued, that is, the premiums paid by policyholders will not attract TDS. It will facilitate smoother tax compliance for policyholders,” said ICICI Prudential Life Insurance chief financial officer Satyan Jambunathan.

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Insurers said they are comfortable with the fact that TDS is linked to the concept of gain and not the entire amount. Another insurer said that some of the investment-type policies sold before the Sebi-IRDAI tussle might face TDS, but most of the policies sold in the last 10 years are tax-compliant.

“TDS was deducted on only those life insurance policies that did not qualify under section 10(10)D of the I-T Act. A very small portion of the products would fall in this category as the new product regulations in 2010 made it mandatory for all life insurance products to offer life cover equivalent to 10 times the annual premium for individuals up to 45 years,” said Jambunathan.

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