What is tax deducted at source? Does amount under LIC qualify for TDS?

What is tax deducted at source? Does amount under LIC qualify for TDS?

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Tax Deducted at Source (TDS) is a system introduced by Income Tax Department, where person responsible for making specified payments such as salary, commission, professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax before making payment in full to the receiver of the payment. As the name suggests, the concept of TDS is to deduct tax at its source.

Example of TDS assuming the nature of payment is professional fees on which specified rate is 10%.

XYZ Ltd makes a payment of Rs 50,000/- towards professional fees to Mr. ABC, then XYZ Ltd shall deduct a tax of Rs 5,000/- and make a net payment of Rs 45,000/- (50,000/- deducted by Rs 5,000/-) to Mr. ABC. The amount of 5,000/- deducted by XYZ Ltd will be directly deposited by XYZ Ltd to the credit of the government.

Some of the income sources that qualify for TDS are

Salary
Amount under LIC
Bank Interest
Brokerage or Commission
Commission payments
Compensation on acquiring immovable property
Contractor payments
Deemed Dividend
Insurance Commission
Interest apart from interest on securities
Interest on securities
Payment of rent
Remuneration paid to director of the company, etc.
Transfer of immovable property
Winning from games like a crossword puzzle, card, lottery, etc.

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Tax Deducted at Source (TDS) is a tax collected by the government at the time of certain payments like salary, interest, rent, commission, etc., to ensure tax is deducted at the source of income.

LIC & TDS:

  • Maturity Amount: If the sum assured is taxable (not exempt under Section 10(10D)), TDS @ 5% is deducted if the payout exceeds ₹1 lakh.
  • Premium Paid: No TDS on premiums paid for LIC policies.
  • Commission to Agents: TDS applies if commission exceeds ₹15,000 in a financial year.
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