TaxTMI 
TaxTMI 
Taxation of Non-Exempt Life Insurance Payouts : lause 393(1)[Table: S.No. 8(i)] of the Income Tax Bill, 2025 Vs. Section 194DA of the Income-tax Act, 1961
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....tion of these provisions reflects the legislative intent to bring greater transparency and efficiency in tax collection, especially in the financial services sector. The focus of this commentary is a detailed analysis of Clause 393(1)[Table: S.No. 8(i)] as proposed in the Income Tax Bill, 2025, followed by a comparative and critical analysis with the existing Section 194DA of the Income-tax Act, 1961. The analysis will cover the legislative background, objectives, key features, interpretative issues, practical implications, and suggest possible areas for reform or judicial clarification. Objective and Purpose The primary purpose behind both Clause 393(1)[Table: S.No. 8(i)] and Section 194DA is to ensure that tax is collected at source on ....
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.... limit: Rs. 1,00,000 B. Key Features: * Scope: Applies to any person responsible for paying to a resident any sum under a life insurance policy, including bonuses, except amounts not includible in total income under the relevant exemption schedule. * Exemption Reference: The carve-out for exempted amounts refers to Schedule II (Table: Sl. No. 2) of the Bill, which is analogous to Section 10(10D) of the Income-tax Act, 1961. * Threshold: No deduction is required where the aggregate payout to a payee in a tax year is less than Rs. 1,00,000. * Rate: TDS is to be deducted at 2% of the "income comprised in such sum" (i.e., the taxable portion, not the gross payout). * Timing: Deduction is to be made at the time of credit or payment, w....
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.... with Declaration for No Deduction: The provision allows for a declaration (sub-section 6) for no deduction, but only where the aggregate income is below the basic exemption limit. Practical implementation may require further clarification, especially for senior citizens. 4. Practical Implications A. For Insurance Companies (Payers): * Obligation to deduct TDS at 2% on taxable portion of non-exempt payouts exceeding Rs. 1,00,000 per payee per year. * Need to compute "income comprised" correctly, i.e., payout minus total premium paid (excluding premiums for riders not eligible for deduction). * Maintain records of aggregate payouts per payee to apply the threshold correctly. * Obligation to process declarations for non-deduction (w....
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....ced to 2% (effective 01-10-2024). Key Differences and Similarities 1. Rate of Deduction: - Both the 2025 Bill and the current 1961 Act (as amended w.e.f. 01-10-2024) prescribe a TDS rate of 2% on the income component of the payout. 2. Threshold Limit: - Both provisions prescribe a threshold of Rs. 1,00,000 in aggregate per year, below which no TDS is required. 3. Scope and Exemptions: - Both exclude amounts exempt under the respective exemption provisions (Schedule II in the Bill; Section 10(10D) of the Income-tax Act, 1961). - Both cover all sums under a life insurance policy, including bonuses. 4. Basis of Deduction: - The deduction is only on the "income comprised" in the payout, not the gross amount. - The computation of "i....
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....uire aggregation at the payee level, but explicit statutory language would be beneficial. - Interaction with Other TDS Provisions: The Bill is more explicit in cross-referencing other TDS provisions and providing for precedence, which is an improvement over the existing structure. Comparative Table: Key Elements Feature Clause 393(1)[Table: S.No. 8(i)] of the Income Tax Bill, 2025 Section 194DA of the Income-tax Act, 1961 Applicability Any person paying to a resident any sum under a life insurance policy (other than exempted amounts) Any person paying to a resident any sum under a life insurance policy (other than exempted amounts u/s 10(10D)) Threshold Rs. 1,00,000 aggregate per tax year Rs. 1,00,000 aggregate per fina....