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Curated By: Business Desk
Last Updated: August 18, 2023, 17:22 IST
Change in tax regulations was introduced in the Union Budget 2023-24.
Under the new provision, policies issued on or after April 1, 2023, will be exempted from tax only if the total aggregate premium does not exceed Rs 5 lakh annually.
The Central Board of Direct Taxes (CBDT) has stepped in with new rules for calculating income proceeds from life insurance policies with annual premiums exceeding Rs 5 lakh. The new rules were announced this Wednesday. CBDT has rolled out the Income Tax Amendment (Sixteenth Amendment) Rules, 2023, thereby introducing rule 11UA. It implies the calculation of income upon maturity of life insurance policies issued on or after April 1, 2023.
Under the new provision, policies issued on or after April 1, 2023, will be exempted from tax on maturity benefits under Section 10(10D) only if the total aggregate premium does not exceed Rs 5 lakh annually. Moreover, for premiums exceeding this limit, the maturity proceeds will not qualify for tax exemption. It will be treated as part of the income and taxation will be done based on applicable rates.
A circular released by the CBDT reads “It may be noted that Finance Act, 2021 had earlier inserted, fourth to seventh provisos in clause (10D) of section 10 to provide that the sum received under any unit linked insurance policy [ULIP] (except any such sum received on the death of a person), issued on or after the 01.02.2021 shall not be exempt under said clause if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000 (fourth proviso).”
It also clarified that under the new provision, the sum under a life insurance policy will only be paid to the nominee if the individual dies.
This change in tax regulations was introduced in the Union Budget 2023-24. AMRG & Associates Joint Partner (Corporate & International Tax), Om Rajpurohit, during an interaction with Press Trust of India (PTI), said that any surplus amount received upon maturity of such policies would be considered taxable under the “income from other sources” category.
AKM Global Tax Partner, Amit Maheshwari, stated that this provision aims to eliminate tax benefits exploited through investments disguised as insurance policies.
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