Question ID : 40378

019493

While surrundering the LIC Policy, LIC has deducted TDS u/s 194DA @ 1% on the surrender value. Premium paid over 5 years was Rs. 261297/- .The surrender value recived was Rs. 223212 less TDS Rs. 2233 . net value is Rs. 220979/-. Whether any amount is to be offerred for assessment.

Answer ID : 80163

Finance Minister Nirmala Sitharaman in the budget 2019 has proposed to deduct 5% tax on net income portion of taxable life insurance proceeds instead of the current TDS of 1% of the gross maturity payout under the policy. I would like to throw some light on Net income portion, in particular here it would mean to be Value received less premiums paid which comes to 223212-261297 which is a negative value hence there is no Income portion so there should not be any question of deducting tax. This amendment is effective from 1st September, 2019 .so the date has to be taken into consideration that on which date such amount has been received if it is prior september 2019 then the TDS deducted would be correct. Any suggestions or coreections are welcome. Thank you CA RUPAK MIGLANI NAGPUR, CHHINDWARA

Answer ID : 80167

Hi Nagappan, As per the provisions of section 10(10D) of the Act, any sum received under LIC (including bonus) would be exempt from tax only if the premium payable for any of the years during the term of the policy does not exceed 10% of capital sum assured. In case the premium exceeds 10% of capital sum assured in any year, the Insurer would be liable to deduct tax @ 1% (amended to 5% vide Finance Act (2) 2019). Accordingly, as the LIC has deducted 1% in your case, it is ostensible that premium for any year is exceeding 10% of capital sum assured and consequently, the whole sum would be chargeable to tax. This is also due to the fact that you might have claimed the premium under section 80C of the Act. Therefore, total amount of INR 2,23,212 is required to be declared in the return morefully when deduction under section 80C is claimed on premium payment.

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