The TDS (Tax Deducted at Source) rate for LIC maturity is 5% under specific conditions.
Understanding TDS on Life Insurance Maturity
Any income amount received from the payment made towards a life insurance policy is liable for TDS at a rate of 5%. This deduction applies when the maturity amount exceeds a certain threshold in a financial year.
Here are the key aspects regarding TDS on LIC maturity:
- TDS Rate: The applicable TDS rate is 5%.
- Applicability Threshold: TDS is only deducted if the maturity amount received in a financial year is more than Rs. 1 Lakh. If the amount is Rs. 1 Lakh or less, no TDS is deducted.
- Tax Exemption (Section 10(10D)): Generally, maturity proceeds from a life insurance policy are exempt from tax under Section 10(10D) of the Income Tax Act. However, this exemption is subject to certain conditions, primarily related to the premium paid as a percentage of the sum assured. If the policy does not meet these exemption criteria (e.g., if the premium exceeds a certain percentage of the sum assured as per income tax rules, especially for policies issued after April 1, 2012, where the premium payable for any year exceeds 10% of the actual capital sum assured), the maturity amount becomes taxable. Consequently, TDS is applicable on such taxable proceeds if they exceed the Rs. 1 Lakh threshold.
- Net Receipt: The policyholder receives the maturity amount after the 5% TDS has been deducted by the insurer, provided the amount exceeds the specified threshold and is taxable.
TDS at a Glance for LIC Maturity
| Condition | TDS Rate | Details |
|---|---|---|
| Maturity amount ≤ Rs. 1 Lakh | 0% | No TDS is deducted. |
| Maturity amount > Rs. 1 Lakh | 5% | TDS is deducted on the entire taxable maturity amount. |
This mechanism ensures that the tax liability is fulfilled at the source if the life insurance maturity proceeds are taxable and surpass the specified limit.
