Not full amount, but only difference is liable for taxation on maturity proceeds of Life insurance premium if it is not exempt u/s 10(10D)

Above conclusions could be drawn by the amendment proposed in section 194DA which provides for TDS on difference only and not the entire amount of maturity proceeds.

Under section 194DA of the Act, a person is obliged to deduct tax at source, if it pays any sum to a resident under a life insurance policy, which is not exempt under sub-section (10D) of section 10. The present requirement is to deduct tax at the rate of 1% of such sum at the time of payment.

Several concerns have been expressed that deducting tax on gross amount creates difficulties to an assessee who otherwise has to pay tax on net income (i.e after deducting the amount of insurance premium paid by him from the total sum received). From the point of views of tax administration as well, it is preferable to deduct tax on net income so that the income as per TDS return of the deductor can be matched automatically with the return of income filed by the assessee. The person who is paying a sum to a resident under a life insurance policy is aware of the amount of insurance premium paid by the assessee.

Hence, it is proposed to provide for tax deduction at source at the rate of 5% on income component of the sum paid by the person.

This amendment shall be effective from 1st September, 2019.