What makes insurance popular?
The answer is simple. One is that it provides financial security to the person and their family. At the same time, it’s a tax-saving opportunity as the premiums paid are deductible while filing.
Also, under section 10(10D) one can claim a tax exemption on the amount received under a life insurance policy at maturity if the policy is taken after 01/04/2012 and the premium paid on such a policy does not exceed 10% of the sum assured value. (20% if the policy is taken before 01/04/2012.)
The objective exemption u/s 10(10D) was to benefit the small and genuine cases of LIC.
Hence, to minimize the misuse of such exemption, the FM in the budget 2023 announced the below-mentioned change.
Budget 2023 announcement:
If aggregate of premium per PAN for life insurance policies (except ULIP) issued on or after 1 April 2023 exceeds ₹5,00,000 in a financial year, then income on maturity shall be taxable from those policies.
What are the exceptions to it?
This provision shall not affect the insurance policies issued till 31 March 2023. Also, in the event of a death of a person insured, the tax exemption will be available on the amount received.
The proceeds from only those policies issued on or after 1st April 2023, whose aggregate premium is up to ₹5,00,000, shall be exempt.
A few points:
- The net income received (redemption value- premium paid) on the maturity of such life insurance policies shall be chargeable under “Income from Other Sources”
- The deduction on premium under section 80C shall be allowed every year, provided the premium is up to 10% of the sum assured value where the policy is issued after 01/04/12 and 20% for the policy issued before 01/04/12.
- For policies issued on or after 1st April 2023, the aggregate premium of all life insurance policies should be considered.
- If the maturity amount exceeds the limit of ₹1,00,000 in a financial year, then the insurer is liable to deduct TDS under Section 194DA at 5% on the net income
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