New Tax Rules for Life Insurance Policies: What You Need to Know
The Indian government has also brought some very serious changes in its taxation by making them applicable to life insurance policy contracts. To make this clearer, here's a little simple example: Taxation on High Premium Policies Concerning life insurance policies, from the FY 2023-24, if you're already holding one or more life insurance policies cumulatively attracting annual premium above ?5 lakh, then the maturity proceeds on these policies will be taxable now. The sum assured payable along with bonuses, etc., would thus be taxable under the head "Income from Other Sources-t." It is intended thereby to restrict the misuse of life insurance as an investment tool by wealthy individuals. Exceptions to the New Rule Death Benefit, that is, the death benefit, if the policyholder dies during the policy term, paid to the nominees shall be tax-free, irrespective of the premium paid.
Unit-Linked Insurance Plan (ULIPs): These are not concerned with new tax regulations and will enjoy the concession as always.
Existing Tax Benefits
Some tax benefits do exist irrespective of all changes:
Section 80C: Premiums paid for life insurance policies will be allowed as a deduction up to ?1.5 lakh in a tax year, from your taxable income.?
Section 80D: Additional riders like critical illness cover can provide such privileges for further tax deductions.
Section 10 (10D): The maturity proceeds from policies that have annual premiums equal to or less than ?5 lakh will be tax exempt.
What Does that Imply to Policyholders?
If you are thinking about the entry of a new life insurance policy or have already bought such, it is significantly important to consider such possible tax changes. Therefore, any new life insurance policy obtained after April 1, 2023, will become taxable at the time of maturity proceeds if the annual premiums exceed ?5 lakh. Any policies obtained before this date would not come under the tax regime, and maturity amounts would remain tax-free.
Life insurance is a very significant financial tool providing security to the client, but it is most beneficial to know changes in the tax regime, to face them in a manner that best suits you.
