Image for representational purpose only. , Photo credit: The Hindu
The Union Budget 2023-24 has proposed to limit income tax exemption on income of high value life insurance policies.
As part of the thrust on better targeting of tax concessions and exemptions, the proposal means that only income from life insurance policies with aggregate premium up to ₹5 lakh will be exempted from taxation.
Read this also | Budget 2023 | How is the money allocated and where does it come from?
“It is proposed to provide that where the aggregate premium for life insurance policies [other than ULIP] Income exceeding Rs 5 lakh, issued on or after April 1, 2023, only the income from those policies with aggregate premium up to Rs 5 lakh will be exempt,” the budget documents said. This proposal will not affect the tax exemption provided to the amount received on the death of the life assured, nor will it affect insurance policies issued up to March 31, 2023.
This income will be taxable under the head “Income from other sources”. Deduction shall be allowed for premiums paid, if such premium has not been claimed as deduction earlier. There will be no change in the taxation of policies issued before April 1, 2023. Stopping abuse by the rich.
The proposal follows a measure in the Finance Act, 2021 relating to income of ULIP policies where the premium paid for any year was more than ₹2.5 lakh. Both the past and present moves are aimed at preventing misuse of exemption by high net worth individuals, who invest in policies with large premium contributions and then claim exemption on amounts received under such policies.
The latest proposal along with income tax benefits announced in the budget for those under the new tax regime dampened investor sentiment in life insurance stocks, with shares of LIC, HDFC and SBILife falling on Wednesday.