Proceeds from life insurance premium over the annual premium of ₹5 lakh would be taxable from new financial year i.e. from 1st April 2023. The Finance Minister Nirmala Sitharaman made an announcement about this change in income tax rules while presenting the Union Budget 2023 in parliament. However, the finance minister made it clear that the new income tax rule will keep death benefit on such premium would continue to remain tax exempted. She also announced that the new income tax rule won’t be applicable on ULIP (Unit Linked Insurance Plan).
“It is proposed to provide that where aggregate of premium for life insurance policies (other than ULIP) issued on or after 1st April, 2023 is above 5 lakh, income from only those policies with aggregate premium up to 5 lakh shall be exempt. This will not affect the tax exemption provided to the amount received on the death of person insured. It will also not affect insurance policies issued till 31st March, 2023,” Nirmala Sitharaman said while delivering her budget speech on the floor of the parliament.
Decoding the outcome of this announcement, Pankaj Mathpal, MD & CEO at optima Money Managers said, “In the previous budget, it was announced that benefit on ULIP premium of over ₹2.50 lakh in single financial year would be taxable. But, other life insurance products were left untouched. In this budget, the Finance Minister Nirmala Sitharaman has now covered other life insurance products by levying income tax on the insurance benefit coming on the annual premium above ₹5 lakh limit. However, ULIP limit of ₹2.5 lakh per annum has been left untouched.”
So, once this budget proposal on life insurance become applicable (from 1st April 2023), LIP benefits on an annual premium up to ₹2.5 lakh will be tax exempted whereas life insurance benefit on up to ₹5 lakh per annum premium will remain tax exempted.
Speaking on this new budget proposal announced by FM Sitharaman, SEBI registered tax and investment expert said, “Those who are investing in life insurance plans can now avail tax exemption on the insurance proceeds on up to ₹7.50 lakh annual premium if they pay ₹2.5 lakh for ULIPs and ₹5 lakh for other than ULIP life insurance plans.”