New Delhi: The Income Tax Department has updated the rules for calculating the income from life insurance policies where the annual premium exceeds Rs 5 lakh. These changes are part of the Income Tax Amendment (Sixteenth Amendment) Rules, 2023, which were introduced by the Central Board of Direct Taxes (CBDT). The new rules are contained in Rule 11UACA, as per Mint Genie.
In simpler terms, if you take out a life insurance policy with an annual premium of more than Rs 5 lakh, the maturity proceeds will be taxable. This is not the case for policies with premiums below Rs 5 lakh, which are still exempt from tax.
What Does the New Rule Say?
The tax exemption on maturity benefits under Section 10(10D) will only be valid for policies issued on or after April 1, 2023, if the total premiums paid by an individual per year do not exceed Rs 5 lakh.
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Statement from the Central Board of Direct Taxes
“It may be noted that the Finance Act, 2021, had earlier inserted the fourth to seventh provisos in clause (10D) of Section 10 to provide that the sum received under any unit linked insurance policy (except any such sum received on the death of a person), issued on or after February 1, 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 (the fourth proviso),” the CBDT said.
“It was also provided that if the premium is payable for more than one ULIP issued on or after February 1, 2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years during the term of any of the policies (fifth proviso),” it added.
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What Was the Need for the New Rule?
To stop people from utilizing these plans as a means of avoiding paying taxes on their investments, a new tax law for high-premium life insurance policies was enacted. The government believes that these policies should be used for their intended purpose, which is to provide financial security for families in the event of the insured person’s death.
