Deduction of Income Tax at source from sum under Life Insurance Policy in terms of section 194DA

The Chairman

Central Board of Direct Taxes (CBDT)                                                         December 30,2014

Government of India

ARA center

E-2, Jhandewalan extension

New Delhi-110055

Dear Sir,

Re: Deduction of Income Tax at source from sum under Life Insurance Policy in terms of section 194DA                      of the Finance Act,2014/                                       

                                 

Any sum over there sold limit of Rs1 lac received including bonus under Life Insurance Policies which is not exempted under section 10(10D) of the Income Tax act,1961 would now be subject to deduction of tax at source w.e.f 01/10/2014 @2% if the Policy holder provides valid PAN, otherwise it will be 20% on the gross amount.

Sum Assurance depends on the premium payble during the term of the policy . This premium is deposited from ‘post tax income’ of the tax payee policyholder or from income of the non-tax payee policyholder.

Sum Assurance designed by the insurers based on premium accumulated for years in case of regular -premium policy and single premium , incase of single- premium policy. Many times premium exceeds the amount of Sum Assurance due to  loading of extra. In other words accumulation  of premium during the term of the Policy constitutes the principal i.e. Sum Assured (like recurring deposit of Bank & Post Office) which should not come under the purview of “Income” and thus not chargeable to tax.

What is the provision of the Constitution of India to levy Income tax?

“The Central Government has been empowered by entry  82  of the union list of schedule  VII of the constitution of India to levy tax on all income other than agriculture  income subject to section 10(1)”

The word ‘income’ in its broad sense, is the gain derived  from capital, lab our or a combination of the two. It is distinguishable from the capital itself.

“The Government of India imposes tax on taxable income  of all persons including individuals ,HUF, companies forms etc.The levy is governed by Income Tax Act,1961”.Section 194DA of the Finance Act,2014 has not distorted the ‘nomenclature’ of ‘Income tax’ but also it has defeated the spirit of the schedule VII of the Indian Constitution .

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Now the question arise:

1 . Why is levy of tax on sum Assurance (i.e principal) of LIC policy?

2 . Why are Bank deposits  (i.e. principal) exempted  from section 194DA of the finance act 2014?

3 . Why is LICI be left out of the provision of form 15H/G?

4 . Does the section 194DA not discriminate LICI from Bank?

People buy Life Insurance Policy sacrificing their present comfort because they feel ”it is only by the insurance policy some of the tears of the widow may be wiped away and some of the cries of fatherless be hushed, because the best substitute for a father on this side of the world is Life Insurance “.

In this context shri T.S Vijayan, Chairman of Insurance regulatory & development Authority (IRDA) stressed that there must be a concerted efforts between the Insurance industry ,the regulator and the Government in creating public awareness about the benefits of Insurance.

But introduction of 194DA allows us to believe that the Government  wants to discourage  its people from taking Life Insurance Policy.No people’s  Government should do so when it can not provide financial security to its people.

Income of many Life Insurance Policyholders does not fall under tax bracket .Many of them may not have PAN card as it is not a mandatory  for all classes of people. Section 194DA compels them to engage tax consultant, on payment of fees ,to recover the amount deducted by LICI as TDS. If this cost is higher than the amount of TDS, Policyholders will prefer to  forego the claim for refund .Should it be desirable for the Government?

Moreover , if section 194DA would not be effective from retrospective  date ,many Life Insurance Policyholders could opt for not taking the policy before the Act came into force.

I hope, you will find reasons to appreciate my analysis and do your best to withdraw the section 194DA and value the concern of the insuring public for their family.

  

Thanking You,

 PC datta

Yours faithfully

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Copy to 1) The Hon’ble Prime Minister ,Government of India

                    Prime Minister Office

                    152,South-Block

                    Rasina Hills

                    New Delhi-110 011

                                                           -For his kind information with the request to take appropriate action as his     

                                                     honour deems feet

                   

                2) The Hon’ble  Finance Minister, Government of India

                     Room No -134

                     North-Block    

                     New Delhi-110 001

                                                     -For his kind information with the request to take appropriate action as his     

                                                     honour deems feet