Your life insurance policy has matured, and the insurer is about to pay you. Before the money reaches your bank account, a small part may be held back as tax. That is Section 194DA at work. It applies to payouts from life insurance policies that are not exempt from tax — and since 1 October 2024, the rate has been only 2%.
Most policyholders never face this TDS at all. If your policy qualifies for exemption under Section 10(10D), the insurer pays the full maturity amount with no deduction. But if your policy fails the exemption test — because the premium was too high compared to the sum assured, or because it is a high-premium policy bought after April 2023 — the insurer must deduct tax before paying you. This guide explains when Section 194DA applies, how much TDS is cut, and how to get it back or avoid it.
What is Section 194DA and what is the TDS rate on life insurance maturity in 2026? Section 194DA (now Section 393(1), Table serial 8(i) of the Income Tax Act, 2025) requires the insurer to deduct TDS at 2% on the income part of a life insurance payout — maturity, surrender value or bonus — when the policy is not exempt under Section 10(10D) and the total payout in a financial year exceeds Rs 1,00,000.
Section 194DA at a glance
| Fact | Detail |
|---|---|
| What it covers | TDS on life insurance payouts to resident policyholders |
| Rate | 2% (from 1 October 2024) on the income part only |
| Rate before 1 October 2024 | 5% on the income part only |
| Rate — no PAN furnished | 20% (Section 206AA) |
| Threshold | Rs 1,00,000 aggregate payout per policyholder per financial year |
| What counts for the threshold | Gross payout (maturity + bonus), not just the profit |
| What TDS is charged on | Income part only (payout minus premiums paid) |
| When to deduct | At the time of payment |
| New section (from 1 April 2026) | Section 393(1), Table serial 8(i), Income Tax Act, 2025 |
| Payment code | 1030 |
| TDS certificate | Form 16A (becomes Form 131 from 1 April 2026) |
| Quarterly TDS return | Form 26Q (becomes Form 140 from 1 April 2026) |
What is Section 194DA?
Section 194DA of the Income Tax Act, 1961 deals with tax deducted at source on payments made under a life insurance policy. It covers maturity proceeds, surrender value and any bonus allocated on the policy. The section was introduced by the Finance Act, 2014 and came into force on 1 October 2014.
The provision applies only when three conditions are all met:
- The payment is made to a resident of India. Payments to non-residents fall under Section 195 instead.
- The amount is not exempt under Section 10(10D). If the policy qualifies for that exemption, there is no TDS at all.
- The aggregate payout in the financial year exceeds Rs 1,00,000.
In practice, the person responsible for paying is the life insurance company itself. The insurer deducts the tax at the time of payment and deposits it with the government. You get credit for that TDS when you file your income tax return. TDS on life insurance maturity is part of the same system as TDS on insurance commission under Section 194D — but the two sections tax different people for different things, as explained later in this guide.
What is the TDS rate under Section 194DA in 2026?
The current rate is 2%. It applies to payments made on or after 1 October 2024. Before that date, the rate was 5%.
| Period | TDS rate |
|---|---|
| Before 1 October 2024 | 5% on the income part |
| From 1 October 2024 | 2% on the income part |
| No PAN furnished (Section 206AA) | 20% |
The rate cut came through the Finance (No. 2) Act, 2024. The cut stayed in place when the provision moved into Section 393(1) of the Income Tax Act, 2025 from 1 April 2026. The 2% rate applies for Tax Year 2026-27 as well.
Two points about the rate often cause confusion. First, the 2% is charged only on the income part of the payout, not on the full maturity amount. Second, the 20% rate for a missing PAN is much higher than the normal rate — and some insurers apply it to the full payout rather than only the income part. Sharing your PAN with the insurer is the simplest way to keep the deduction small.
How is the income part of a life insurance payout calculated?
This is the most important part of Section 194DA. TDS is not charged on the whole amount you receive. It is charged only on the profit built into the payout.
Income part = Total payout (including bonus) − Total premiums paid
The rule that TDS applies only to the income part was clarified by the Finance Act, 2019, effective 1 September 2019. Before that change, some insurers deducted TDS on the full payout. Today the law is clear: your own premiums come back to you without TDS. Only the gain above the premiums is taxed at source.
Example 1 — Simple maturity payout
A policy matures at Rs 5,00,000. The policyholder paid total premiums of Rs 3,00,000 over the policy term. The income part is Rs 2,00,000. TDS at 2% is Rs 4,000. The policyholder receives Rs 4,96,000.
Example 2 — No income, no TDS
A policy pays Rs 4,00,000 at maturity, but the policyholder paid Rs 4,20,000 in premiums over the years. The income part is zero (in fact, negative). There is no income to tax, so no TDS is deducted — even though the payout is above the Rs 1,00,000 threshold.
Example 3 — No PAN
The same payout as Example 1, but the policyholder has not given a PAN. TDS at 20% applies. On the income part of Rs 2,00,000, that is Rs 40,000. Some insurers apply the 20% to the full Rs 5,00,000 payout, which would be Rs 1,00,000. Either way, the loss is large. Give your PAN to the insurer well before the maturity date.
What is the Rs 1,00,000 threshold under Section 194DA?
No TDS is deducted if the total payout to you in a financial year is Rs 1,00,000 or less. The test uses the gross payout, not the income part. Once the total crosses Rs 1,00,000, TDS applies to the whole income part — not only to the amount above Rs 1,00,000.
Example 4 — Below the threshold
A small policy matures at Rs 90,000. The policyholder paid Rs 70,000 in premiums. The income part is Rs 20,000, but the total payout is below Rs 1,00,000. No TDS is deducted.
Example 5 — Two policies in one year
A policyholder has two policies maturing in the same financial year. Each pays Rs 70,000. Neither policy alone crosses the limit, but the aggregate payout is Rs 1,40,000. The threshold is crossed, and TDS applies to the income part of each payout. The limit is counted per policyholder, per financial year, per insurer.
Example 6 — Threshold crossed, TDS on the full income part
A policy matures at Rs 1,50,000. Premiums paid were Rs 1,00,000. The income part is Rs 50,000. TDS at 2% is Rs 1,000 — charged on the full Rs 50,000 income part, not only on the Rs 50,000 by which the payout crossed the threshold.
When is a life insurance payout exempt under Section 10(10D)?
Section 194DA does not apply at all if the payout is exempt under Section 10(10D). Most traditional policies pass this test, which is why most policyholders never see this TDS. The exemption depends on when the policy was issued and how large the premium is compared to the sum assured.
| Policy issued | Exemption applies when |
|---|---|
| Before 1 April 2012 | Premium in any year does not exceed 20% of the sum assured |
| On or after 1 April 2012 | Premium in any year does not exceed 10% of the sum assured (15% for a person with a disability) |
Two newer rules have pulled more policies out of the exemption:
- ULIPs issued on or after 1 February 2021: if the aggregate annual premium across all ULIPs exceeds Rs 2.5 lakh, the maturity proceeds are not exempt. The ULIP taxation guide explains this rule in detail.
- Non-ULIP policies issued on or after 1 April 2023: if the aggregate annual premium exceeds Rs 5 lakh in any previous year, the maturity proceeds are not exempt. This change came through the Finance Act, 2023.
One exemption has no conditions at all: the death benefit. Any sum received on the death of the policyholder is exempt under Section 10(10D), whatever the premium was. Section 194DA never applies to a death claim.
If your policy is exempt, the insurer pays the full amount with no TDS. If it is not exempt, the maturity amount becomes taxable income — and Section 194DA requires the insurer to deduct TDS on the income part.
How is the maturity amount taxed after TDS?
TDS is not the final tax. It is only an advance payment. The taxable part of a non-exempt life insurance payout is treated as “income from other sources” under Section 56(2)(xiii). When you compute that income, you can reduce the premiums you paid — but only the premiums you never claimed as a deduction under any other provision (Rule 11UACA). Premiums already claimed under Section 80C cannot be deducted again.
The final tax depends on your income slab. If your total income for the year is below the basic exemption limit, the TDS deducted is refunded when you file your return. If you are in a higher slab, you may owe a little more than the 2% already deducted.
Example 7 — High-premium policy after April 2023
A non-ULIP policy was issued in May 2023 with an annual premium of Rs 6,00,000. Because the premium exceeds Rs 5 lakh, the maturity proceeds are not exempt under Section 10(10D). At maturity the policy pays Rs 30,00,000. Total premiums paid were Rs 24,00,000. The income part is Rs 6,00,000. TDS at 2% is Rs 12,000. The policyholder receives Rs 29,88,000 and reports Rs 6,00,000 (minus any unclaimed premiums) as income from other sources.
Remember that the premium on a life insurance policy also qualifies for deduction under Section 80C, up to Rs 1,50,000 a year. That deduction is separate from the TDS question — it applies while you pay premiums, not when the policy matures.
Section 194D vs Section 194DA — what is the difference?
The two sections sit next to each other in the Act and both involve insurance, but they tax different payments to different people.
| Point | Section 194D | Section 194DA |
|---|---|---|
| Who is paid | Insurance agent (commission) | Policyholder (policy payout) |
| What is taxed | Commission for selling or renewing policies | Maturity, surrender value or bonus |
| Rate | 2% for individuals/HUFs, 10% for companies | 2% on the income part |
| Threshold | Rs 20,000 aggregate commission per year | Rs 1,00,000 aggregate payout per year |
| Base | Full commission | Income part only (payout minus premiums) |
| Form 15G/15H | Can be submitted | Can be submitted |
| New section (from 1 April 2026) | Section 393(1), Table serial 1(i) | Section 393(1), Table serial 8(i) |
If you are an agent, Section 194D cuts TDS from your commission. If you are a policyholder receiving a maturity payout from a non-exempt policy, Section 194DA cuts TDS from your payout. The two never apply to the same payment.
How can I avoid or reduce TDS under Section 194DA?
There are three practical routes:
1. Submit Form 15G or Form 15H. If your total income for the year is below the taxable limit, you can give Form 15G (individuals below 60 years) or Form 15H (senior citizens) to the insurer. On receiving a valid form, the insurer does not deduct TDS. The test is your total estimated income for the year, not just the policy payout — the form works only if your final tax liability for the year is nil. The Form 15G/15H guide explains the conditions and the common mistakes.
2. Apply for a lower or nil TDS certificate (Form 13). If your tax liability is lower than the TDS that would be deducted, you can apply to your Assessing Officer in Form 13 for a certificate for lower or no deduction. Give the certificate to the insurer before the payout is made.
3. Claim the credit or refund in your return. If TDS has already been deducted, check that it appears in your Form 26AS and AIS. Report the income in your return, claim the TDS as credit, and the excess comes back as a refund. The Form 26AS vs AIS vs TIS guide shows how to check and fix mismatches.
What does not work: splitting one policy’s payout across years does not help, because the threshold is tested on the aggregate payout in a single financial year. And surrendering a policy early does not escape the section either — surrender value from a non-exempt policy is covered in the same way as maturity proceeds.
How to report the payout and claim the TDS credit
After the payout, the insurer issues a TDS certificate — Form 16A today, Form 131 from 1 April 2026 — showing the amount paid and the tax deducted. The insurer also reports the deduction in its quarterly TDS return (Form 26Q, becoming Form 140 from 1 April 2026). For the Q2 (July–September) TDS statements, the certificate is due by 15 November 2026.
Before filing your return, check three things:
- The TDS appears in your Form 26AS and AIS with the right amount.
- The certificate amount matches the credit shown in 26AS.
- The taxable income is reported under “income from other sources” (unless the policy was exempt, in which case the payout is shown as exempt income).
If the TDS is missing from 26AS, ask the insurer to check its return. A mismatch is usually fixed by the insurer filing a correction statement — you cannot fix it from your side.
What changed in 2024 and 2026?
| Change | Date | Detail |
|---|---|---|
| Rate cut 5% to 2% | 1 October 2024 | Finance (No. 2) Act, 2024 |
| High-premium policies lose exemption | 1 April 2023 | Finance Act, 2023 — non-ULIP policies with annual premium above Rs 5 lakh |
| ULIP premium cap | 1 February 2021 | Finance Act, 2021 — ULIPs with aggregate annual premium above Rs 2.5 lakh |
| Income-part-only base | 1 September 2019 | Finance Act, 2019 |
| Section introduced | 1 October 2014 | Finance Act, 2014 |
| Renumbered to Section 393(1), Table serial 8(i) | 1 April 2026 | Income Tax Act, 2025; payment code 1030 |
From 1 April 2026, the Income Tax Act, 2025 governs new transactions. Section 194DA becomes Section 393(1), Table serial 8(i). The rate (2%), the threshold (Rs 1,00,000) and the income-part-only base all stay the same. Only the section number, the payment code (1030) and the form numbers (Form 131 for the certificate, Form 140 for the return) change.
Common mistakes to avoid
- Assuming TDS applies to the full maturity amount. TDS is charged only on the income part — payout minus premiums. On a Rs 5,00,000 payout with Rs 3,00,000 of premiums, the TDS is 2% of Rs 2,00,000, not 2% of Rs 5,00,000.
- Forgetting the threshold test uses the gross payout. A policy with no profit can still cross the Rs 1,00,000 threshold, but if the income part is zero, no TDS is deducted.
- Ignoring the second policy. Two policies maturing in the same year are added together for the threshold.
- Not giving your PAN. The 20% rate under Section 206AA is ten times the normal rate. Give your PAN to the insurer before maturity.
- Filing Form 15G/15H when you owe tax. The form is valid only if your total income for the year is below the taxable limit. A wrong declaration can draw a penalty.
- Forgetting to claim the credit. TDS deducted is your money until your tax is computed. Always check 26AS/AIS and claim it in your return.
- Confusing 194D with 194DA. Commission to agents and payouts to policyholders are different sections with different thresholds.
Frequently asked questions
What is the TDS rate under Section 194DA?
The rate is 2% on the income part of the payout — the maturity amount minus the premiums you paid. The rate was cut from 5% to 2% on 1 October 2024 by the Finance (No. 2) Act, 2024. If you do not furnish your PAN, the rate is 20% under Section 206AA.
What is the threshold limit for TDS under Section 194DA?
No TDS is deducted if the total payout to you in a financial year is Rs 1,00,000 or less. The test uses the gross payout, not the profit. Once the total crosses Rs 1,00,000, TDS applies to the whole income part, not only to the amount above the limit.
Is TDS applicable on life insurance maturity amount?
Yes, but only if the policy is not exempt under Section 10(10D). If your policy qualifies for the exemption — usually because the annual premium was within 10% of the sum assured — the full maturity amount is paid with no TDS. If the policy fails the exemption test, Section 194DA applies.
How can I avoid TDS on life insurance maturity?
Submit Form 15G (below 60 years) or Form 15H (senior citizens) to the insurer if your total income for the year is below the taxable limit. You can also apply for a lower or nil deduction certificate in Form 13. If TDS has already been deducted, claim it as credit in your income tax return and take a refund if your final tax is lower.
Does Section 194DA apply to death claims?
No. Any sum received on the death of the policyholder is exempt under Section 10(10D), whatever the premium was. Section 194DA applies only to maturity proceeds, surrender value and bonus on a policy that is not exempt.
What is the difference between Section 194D and Section 194DA?
Section 194D deducts TDS on commission paid to insurance agents, with a Rs 20,000 threshold. Section 194DA deducts TDS on payouts made to policyholders under a life insurance policy, with a Rs 1,00,000 threshold. Both now charge 2% for individuals, and both moved into Section 393 of the Income Tax Act, 2025 from 1 April 2026.
Is the maturity amount taxable after TDS is deducted?
Yes, if the policy is not exempt. The taxable part is reported as income from other sources, and the TDS deducted is only an advance payment against your final tax. If the TDS is more than your final tax, the excess is refunded when you file your return. If it is less, you pay the balance with the return.
What is the new section number for 194DA under the Income Tax Act, 2025?
From 1 April 2026, Section 194DA becomes Section 393(1), Table serial 8(i) of the Income Tax Act, 2025, with payment code 1030. The rate, threshold and rules stay the same. The TDS certificate becomes Form 131 (earlier Form 16A) and the quarterly return becomes Form 140 (earlier Form 26Q).
Official sources
- Income Tax Department, e-filing portal — incometax.gov.in
- Income Tax Department — incometaxindia.gov.in
- TDS on life insurance maturity proceeds, Section 194DA/393 — tdsguru.in
- Section 194DA, TDS rates and procedure — paybima.com
Reviewed by Asuthod Rathod, CA. Last updated: 9 November 2026.
Disclaimer: This article is for general information only and is not tax advice. Tax rules change with each Budget and Finance Act. Check the current provisions on the Income Tax Department portal or consult a qualified tax professional before acting on any point in this article.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.