Under Section 194DA a life insurer (LIC, HDFC Life, SBI Life, etc.) deducts TDS at 2% on the income portion of a maturity or surrender payout — maturity amount minus total premiums paid — only when the policy is not exempt under Section 10(10D). The rate was cut from 5% to 2% with effect from 1 October 2024. No TDS if aggregate proceeds paid to you in the year are below ₹1 lakh. Death benefits to a nominee are always exempt.
When Does Section 194DA Apply?
Section 194DA is triggered when a life-insurance company pays maturity proceeds, surrender value or any other sum under a policy — but only if that payment is not exempt under Section 10(10D). A policy loses its 10(10D) exemption in these cases:
- Endowment / money-back issued on or after 1 Apr 2012 — if the annual premium ever exceeds 10% of the sum assured (20% for policies issued 1 Apr 2003–31 Mar 2012). Example: SA ₹5 lakh, premium ₹60,000 (12% of SA) → maturity is taxable.
- ULIP issued on or after 1 Feb 2021 — if the aggregate annual premium across all your ULIPs exceeds ₹2.5 lakh; such proceeds are taxed as capital gains (s.112A) rather than other sources.
- Keyman insurance and policies for disabled dependants under s.80DD(3) — always outside 10(10D).
Section 194DA never applies to sums paid to a nominee on the policyholder's death — death proceeds are fully exempt under Section 10(10D) regardless of the premium-to-sum-assured ratio. TDS only touches maturity, survival-benefit and surrender payouts to the policyholder or assignee.
Policy Type — Taxability & TDS
How each common policy is treated, and whether the insurer must deduct 2% TDS under Section 194DA.
| Policy / payout | Condition | Taxable? | TDS u/s 194DA |
|---|---|---|---|
| Term plan — death benefit | Any premium | Exempt 10(10D) | Nil |
| Endowment / money-back (post 1 Apr 2012) | Premium ≤ 10% of SA | Exempt 10(10D) | Nil |
| Endowment / money-back (post 1 Apr 2012) | Premium > 10% of SA | Taxable — Other Sources | 2% on income |
| ULIP (post 1 Feb 2021) | All-ULIP premium ≤ ₹2.5L/yr | Exempt 10(10D) | Nil |
| ULIP (post 1 Feb 2021) | All-ULIP premium > ₹2.5L/yr | Taxable — Capital Gains | Deducted by insurer |
| Keyman insurance policy | Any | Taxable — Business Income | 2% on income |
| Policy issued before 1 Apr 2012 | Any premium | Exempt 10(10D) | Nil |
TDS applies only when aggregate proceeds from the insurer cross ₹1 lakh in the financial year. See the full TDS rate chart for other sections.
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How the 2% TDS Is Worked Out
Before the Finance Act 2019 the base was the gross payout; today TDS is charged only on the income portion, and the rate is 2% (cut from 5% on 1 October 2024):
Income portion = Maturity/surrender amount − Total premiums paid
TDS = 2% × Income portion. If the income portion is zero or negative, there is no TDS.
Taxable endowment (premium > 10% SA)
Payout below threshold
The 2% is only a withholding. The full income portion is added to your total income and taxed at your slab (Other Sources for endowment, or capital gains u/s 112A for excess ULIPs). If your slab rate is higher you pay the balance; if the TDS exceeds your liability you get a refund on filing your ITR.
Claiming the TDS Credit in Your ITR
TDS deducted under Section 194DA shows up in your Form 26AS and AIS. To recover or reconcile it:
- Report the income portion under Income from Other Sources (or Capital Gains for taxable ULIPs).
- Claim the deducted TDS in the TDS schedule against your total tax liability.
- Use ITR-1 if it is your only extra income besides salary; otherwise ITR-2.
- If TDS exceeds your final tax, the excess is refunded by the Income-tax Department.
Not sure how to report a taxable maturity payout? Let a CA file it correctly.
File My ITR →Under the Income-tax Act, 2025 (in force from 1 April 2026), the Section 194DA provision is re-cast as Section 393(1) in the new Table of TDS rates. The 2% rate, the income-portion base and the ₹1 lakh threshold carry over unchanged — 194DA remains the familiar reference for FY 2025-26.
- Income Tax Dept: incometax.gov.in
- Section 194DA & 10(10D), Income-tax Act 1961
- Rate cut 5% → 2% w.e.f. 1 Oct 2024 (Finance (No. 2) Act 2024)
- Income-tax Act 2025 — Section 393(1), TDS table (w.e.f. 1 Apr 2026)
Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position with the official source before you act on it.