TDS on life insurance payouts reduced from 5% to 2% from October 1

Lower TDS levy for life insurance payouts from October 1

From October 1, 2024, the tax deducted at source (TDS) on life insurance payouts will go down from 5 percent to 2 percent.

This change was introduced as part of Budget 2024 proposals announced on July 23.

The levy is imposed under section 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 included in the total income under clause (10D) of section 10 (amount paid on maturity), shall, at the time of payment thereof, deduct income-tax thereon at the rate of 5 percent on the amount of income comprised,” the section states.

Life insurance companies have welcome the announcement. “The decrease in TDS rate from 5 percent to 2 percent on policy payouts is anticipated to boost customers' liquidity, which is a welcome move,” Rushabh Gandhi, MD and CEO at IndiaFirst Life, said.