Life insurance is a crucial aspect of financial planning, offering both maturity and death benefits to policyholders.
Recent developments highlight a significant change in the realm of life insurance.
The Income Tax Department has introduced fresh regulations for calculating income derived from life insurance policies with annual premiums surpassing five lakh rupees.
Key Highlights
The Central Board of Direct Taxes (CBDT) has unveiled the Income Tax Act (Sixteenth Amendment), 2023, introducing Rule 11UACA.
This rule outlines the method to compute income concerning payouts upon maturity of life insurance policies.
These rules specifically target policies with premiums exceeding five lakh rupees, issued on or after April 1, 2023.
Under the revised amendment, for policies issued post April 1, 2023, the tax exemption on maturity benefits (section 10(10D)) will apply only if the yearly premiums paid for an individual are up to five lakh rupees.
Any premium amounts beyond this threshold will be considered part of the individual’s taxable income, subject to applicable tax rates.
Noteworthy Changes
The budget for the fiscal year 2023-24 introduced changes in tax provisions related to life insurance policies, except for Unit Linked Insurance Plans (ULIPs).
According to Om Rajpurohit, Associate Partner (Corporate and International Tax) at AMRG & Associates, surplus amounts received upon policy maturity will now be categorized as ‘income from other sources’ for taxation purposes.
However, the existing tax exemption on amounts received upon the policyholder’s death remains unchanged and continues to be exempt from income tax.
These new measures aim to ensure a fair and balanced taxation framework for high-value life insurance policies, aligning with the evolving financial landscape.
