Changes in the tax provision in respect of life insurance policies, except ULIPs (Unit Linked Insurance Plans), were announced in the budget for the financial year 2023-24.
The Income Tax Department has implemented new rules for computing income from life insurance policies in cases where the annual premium exceeds Rs 5 lakh. The Central Board of Direct Taxes (CBDT) has notified the Income Tax Act (Sixteenth Amendment), 2023. In this regard, Rule 11UACA has been prescribed for computing income in respect of the amount received on maturity of a life insurance policy. This provision is for insurance policies in which the premium amount exceeds five lakh rupees, and such policies have been issued on or after April 1, 2023. Insurance experts say that due to this change, the insured taking a bigger policy will now have to pay more tax.
Tax will have to be paid in this way
As per the amendment, for policies issued on or after April 1, 2023, tax exemption on maturity benefit under Section 10(10D) will be applicable only if the total premiums paid by an individual does not exceed five lakhs per annum be up to Rs. The amount received for premiums in excess of this limit will be added to income and taxed at the applicable rate. That is, insurance with a premium of more than Rs 5 lakh will have to pay more tax.
The announcement was made in the general budget
Changes in the tax provision in respect of life insurance policies, except ULIPs (Unit Linked Insurance Plans), were announced in the budget for the financial year 2023-24. As per the formula, any surplus amount received on maturity will be taxed under the category of ‘income from other sources’, said Om Rajpurohit, joint partner (corporate and international tax), AMRG & Associates. The taxation provision for amount received on the death of the life assured has not been changed and will be exempt from income tax as before.