Section 194DA —
TDS on Life Insurance Payouts
When a life-insurance maturity or surrender payout is taxable, the 2% TDS on the income portion (rate cut from 5% on 1 Oct 2024), the ₹1 lakh threshold, the 10(10D) exemption test and how to claim the TDS credit in your ITR.
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.
Got a taxable maturity or surrender payout? Have your 194DA TDS and ITR position checked.
Talk to a Tax Expert →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.
Frequently Asked Questions
Related TaxClue Services
Related tax guides
Taxable Insurance Payout? Sort the 194DA TDS Right
From confirming whether your policy is exempt under 10(10D) to reporting the income portion and recovering the 2% TDS, TaxClue's CA-led team handles it end to end — 100% online, across India.