Under section 10(10D), any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt subject to fulfillment of conditions specified under the said section.
Consequently, the sum received under a life insurance policy which does not fulfill the conditions specified under section 10(10D) is taxable.
For ensuring a proper mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempt under section 10(10D), section 194DA provides for deduction of tax at the rate of 1% on any sum paid to a resident under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D).
Tax deduction is required only if the payment or aggregate payment in a financial year to an assessee is Rs 1,00,000 or more . This is for alleviating the compliance burden on the small tax payers.
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