My insurer deducted tax on the whole maturity amount, not on the gain. Was that right, and from what date is s.194DA computed on the income component only?
The base changed on 1 SEPTEMBER 2019. Until then s.194DA required deduction on the sum paid — two per cent of the sum from 1 October 2014, then one per cent of the sum from 1 June 2016 — with nothing in the text confining it to the gain. From 1 September 2019 the words 'five per cent on the amount of income comprised therein' were substituted for 'one per cent' by Act No. 23 of 2019, and the base has been the income component ever since; the rate then came down from five per cent to two per cent by Act No. 15 of 2024 with effect from 1 October 2024, so the section now requires two per cent on the amount of income comprised in the payment.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-10-01, reported as Section 194DA of the Income-tax Act, 1961, as amended up to 2026. It bears on section 194DA, section 10(10D), section 194D of the Income Tax Act 1961, in TDS Defaults, Capital Gains Exemptions and How Tax Law Is Read matters.
This is the amendment that decides whether a policyholder is charged on his whole maturity cheque or only on his gain, and getting the date wrong overcharges him badly — on a policy paying ten lakh rupees against premiums of eight lakh, the difference between the gross base and the income base is a factor of five. The dividing line is the date of PAYMENT, not the date the policy was taken or matured. Note the shape of the section carefully: it applies only to a sum under a life insurance policy, including the bonus allocated on it, OTHER THAN the amount not includible in total income under s.10(10D) — so a policy whose proceeds are exempt under s.10(10D) is outside the section entirely, and s.194DA is by design the machinery for the residue that s.10(10D) does not exempt. The threshold has not moved at all: the proviso disapplies deduction where the payment, or the aggregate of payments to the payee during the financial year, is less than one hundred thousand rupees, and that figure appears in identical words on every vintage of the page from Year 2015 to Year 2026. Note also that the proviso uses 'is less than', not 'does not exceed', so a payment of exactly one hundred thousand rupees is within the section.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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The section as printed on the live page reads: any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent on the amount of income comprised therein. The proviso: no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees. The section was inserted by the Finance (No. 2) Act, 2014 with effect from 1 October 2014 at two per cent of the sum. The rate became one per cent of the sum by Act No. 28 of 2016 with effect from 1 June 2016. It became five per cent on the amount of income comprised in the payment by Act No. 23 of 2019 with effect from 1 September 2019 — the point at which the base ceased to be the gross sum. It became two per cent on the amount of income comprised in the payment by Act No. 15 of 2024 with effect from 1 October 2024. The one hundred thousand rupee threshold has stood unchanged from the section's insertion through every vintage read.
The base changed from the gross sum to the income comprised in the payment on 1 September 2019, by the substitution of 'five per cent on the amount of income comprised therein' for 'one per cent' by Act No. 23 of 2019. For a payment made before that date the section as printed required deduction on the sum paid; for a payment on or after it, only on the income component. The rate on the income component was five per cent from 1 September 2019 and is two per cent from 1 October 2024. Deduction is at the time of payment; the section does not apply to an amount not includible in total income under s.10(10D); and no deduction is made where the payment or the aggregate of payments to the payee during the financial year is less than one hundred thousand rupees.
Not applicable — this is a statement of the statutory text as printed on six departmental section pages of successive vintages, with the amendment history taken from the footnote apparatus on those pages. No judicial reasoning is involved.
194DA. Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent on the amount of income comprised therein:
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Handle my notice → Ask a CA on WhatsAppThe base changed on 1 SEPTEMBER 2019. Until then s.194DA required deduction on the sum paid — two per cent of the sum from 1 October 2014, then one per cent of the sum from 1 June 2016 — with nothing in the text confining it to the gain. From 1 September 2019 the words 'five per cent on the amount of income comprised therein' were substituted for 'one per cent' by Act No. 23 of 2019, and the base has been the income component ever since; the rate then came down from five per cent to two per cent by Act No. 15 of 2024 with effect from 1 October 2024, so the section now requires two per cent on the amount of income comprised in the payment. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 194DA, section 10(10D), section 194D of the Income Tax Act 1961. It is reported as Section 194DA of the Income-tax Act, 1961, as amended up to 2026. This is the amendment that decides whether a policyholder is charged on his whole maturity cheque or only on his gain, and getting the date wrong overcharges him badly — on a policy paying ten lakh rupees against premiums of eight lakh, the difference between the gross base and the income base is a factor of five. The dividing line is the date of PAYMENT, not the date the policy was taken or matured. Note the shape of the section carefully: it applies only to a sum under a life insurance policy, including the bonus allocated on it, OTHER THAN the amount not includible in total income under s.10(10D) — so a policy whose proceeds are exempt under s.10(10D) is outside the section entirely, and s.194DA is by design the machinery for the residue that s.10(10D) does not exempt. The threshold has not moved at all: the proviso disapplies deduction where the payment, or the aggregate of payments to the payee during the financial year, is less than one hundred thousand rupees, and that figure appears in identical words on every vintage of the page from Year 2015 to Year 2026. Note also that the proviso uses 'is less than', not 'does not exceed', so a payment of exactly one hundred thousand rupees is within the section. If it applies to you, the first step is this: Take the date of payment and place it on the timeline: gross sum at two per cent from 1 October 2014; gross sum at one per cent from 1 June 2016; income component at five per cent from 1 September 2019; income component at two per cent from 1 October 2024.
The section as printed on the live page reads: any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent on the amount of income comprised therein. The proviso: no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees. The section was inserted by the Finance (No. 2) Act, 2014 with effect from 1 October 2014 at two per cent of the sum. The rate became one per cent of the sum by Act No. 28 of 2016 with effect from 1 June 2016. It became five per cent on the amount of income comprised in the payment by Act No. 23 of 2019 with effect from 1 September 2019 — the point at which the base ceased to be the gross sum. It became two per cent on the amount of income comprised in the payment by Act No. 15 of 2024 with effect from 1 October 2024. The one hundred thousand rupee threshold has stood unchanged from the section's insertion through every vintage read. The matter was decided on 2024-10-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The base changed from the gross sum to the income comprised in the payment on 1 September 2019, by the substitution of 'five per cent on the amount of income comprised therein' for 'one per cent' by Act No. 23 of 2019. For a payment made before that date the section as printed required deduction on the sum paid; for a payment on or after it, only on the income component. The rate on the income component was five per cent from 1 September 2019 and is two per cent from 1 October 2024. Deduction is at the time of payment; the section does not apply to an amount not includible in total income under s.10(10D); and no deduction is made where the payment or the aggregate of payments to the payee during the financial year is less than one hundred thousand rupees.
Not applicable — this is a statement of the statutory text as printed on six departmental section pages of successive vintages, with the amendment history taken from the footnote apparatus on those pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "194DA. Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent on the amount of income comprised therein:"
It was decided by the CBDT Circulars & Instructions on 2024-10-01 and is reported as Section 194DA of the Income-tax Act, 1961, as amended up to 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 194DA, section 10(10D), section 194D, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The base changed from the gross sum to the income comprised in the payment on 1 September 2019, by the substitution of 'five per cent on the amount of income comprised therein' for 'one per cent' by Act No. 23 of 2019. For a payment made before that date the section as printed required deduction on the sum paid; for a payment on or after it, only on the income component. The rate on the income component was five per cent from 1 September 2019 and is two per cent from 1 October 2024. Deduction is at the time of payment; the section does not apply to an amount not includible in total income under s.10(10D); and no deduction is made where the payment or the aggregate of payments to the payee during the financial year is less than one hundred thousand rupees. It arises in TDS Defaults, Capital Gains Exemptions and How Tax Law Is Read matters, on section 194DA, section 10(10D), section 194D of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Before anything else, test the payment against s.10(10D). If the amount is not includible in total income under that clause, s.194DA does not apply to it at all — the section is expressly confined to sums other than that amount. For a payment on or after 1 September 2019, compute the income comprised in the payment — broadly the excess of the sum received over the premiums paid — and check the insurer's Form 16A against that figure, not against the gross cheque. Where an insurer has withheld on the gross sum for a payment made on or after 1 September 2019, the remedy is a refund claim in the return, supported by the premium payment history; the deduction is not corrected by the insurer after the event. Read the threshold proviso literally: it bites only where the payment or the aggregate of payments during the financial year is LESS THAN one hundred thousand rupees, so a payment of exactly one lakh is caught. Do not confuse this section with s.194D. Section 194D is commission paid to an agent for procuring insurance business; s.194DA is the payment made to the policyholder under the policy.
Still good law. Every step in the sequence set out above is carried by a dated consolidation of the section, and the critical step - the change of base on 1 September 2019 - is established by two consolidations of the same year, printing the two different texts, together with the footnote on the later of them naming the Act and the date. The current text is printed identically in two consolidations, of 2026 and 2025 vintage, each carrying the same footnote attributing the two per cent rate to Act No. 15 of 2024 with effect from 1 October 2024, and the income-component base is further corroborated in the 2022 and 2024 vintages. Two things have not been done. No Finance Act text has been read, so Act No. 23 of 2019 and Act No. 15 of 2024 are identified by number only and have not been matched to Finance Act names from an independent source. And section 10(10D) has not been read, so nothing on this page states what that clause exempts - which matters, because the section deducts only on the income component of a payment that is not exempt under it. Two propositions in circulation are superseded by amendment and should be corrected on sight. Anything applying a five per cent rate to a payment made on or after 1 October 2024 is wrong. And anything applying a gross-sum base to a payment made on or after 1 September 2019 is wrong; the base has been the income component since that date. For a payment governed by the Income-tax Act 2025 the successor of s.194DA should be identified; that correspondence has not been established here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
HOW THE DATE OF THE CHANGE IS ESTABLISHED, because it is the single figure this entry most needed. Four dated consolidations, two on each side of the line. BEFORE: a 2015 vintage prints 'at the rate of two per cent' with the footnote 'Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-10-2014'; a 2017 vintage prints 'at the rate of one per cent' with the footnote 'Sub. for "two" by Act No. 28 of 2016 (w.e.f. 1-6-2016)'; and a 2019 vintage still prints 'at the rate of one per cent'. AFTER: a second 2019 vintage prints 'at the rate of five per cent on the amount of income comprised therein' with the footnote 'Sub. for "one per cent" by the Act No. 23 of 2019, w.e.f. 1-9-2019', and a 2024 vintage prints the same five per cent income-component wording. The two 2019 vintages straddling the amendment are what make the 1 September 2019 date secure rather than remembered. THE CURRENT TEXT is of a 2026 vintage, headed 'Payment in respect of life insurance policy', printing 'at the rate of two per cent on the amount of income comprised therein' with the footnote 'Sub. for "five" by Act No. 15 of 2024, w.e.f. 1-10-2024'. A 2025 vintage prints the same words with the same footnote, so the current text and its attribution rest on two consolidations and not one, and a 2022 vintage prints the five per cent income-component text, confirming that the change of base had taken effect well before 2024. THE THRESHOLD. The one hundred thousand rupee figure, worded 'is less than', is identical in all six consolidations. WHAT HAS NOT BEEN DONE. The Finance Acts themselves have not been read, so Act No. 23 of 2019 and Act No. 15 of 2024 are identified by number only. Section 10(10D) has not been read, and nothing on this page states what that clause exempts. WHY THE CHANGE OF BASE MATTERS MORE THAN THE RATE. Until 1 September 2019 the section required deduction on the sum paid, and nothing in the text confined it to the gain, so a large maturity payment carrying a small gain suffered deduction on the whole. Since that date the base has been the income component, and a payment carrying no income component attracts no deduction at all. A demand raised on the gross sum for a payment after that date is wrong on the base and not merely on the rate. ON THE DATE FIELD. 'decided_on' carries a commencement date and not a decision date: 1 October 2024, the date the footnote gives for the current rate. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The base changed from the gross sum to the income comprised in the payment on 1 September 2019, by the substitution of 'five per cent on the amount of income comprised therein' for 'one per cent' by Act No. 23 of 2019. For a payment made before that date the section as printed required deduction on the sum paid; for a payment on or after it, only on the income component. The rate on the income component was five per cent from 1 September 2019 and is two per cent from 1 October 2024. Deduction is at the time of payment; the section does not apply to an amount not includible in total income under s.10(10D); and no deduction is made where the payment or the aggregate of payments to the payee during the financial year is less than one hundred thousand rupees.
TaxSphere, “Statutory position — s.194DA: payment under a life insurance policy, and the date the base changed from the gross sum to the income component”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-194da-life-insurance-payout-and-the-shift-from-gross-sum-to-income-component/ (validity last checked 2026-09-08)
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