If you have bought an life insurance policy (LIP) before or if you are planning to buy one, you must be aware of a set of tax benefits that life insurance policy provides in form of tax deduction under section 80C of Income Tax Act. Life Insurance is one of the most common financial products owing to the financial protection from the insurance company. You must know that proceeds from life insurance premium over the annual premium of Rs 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).
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“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 Rs 5 lakh, income from only those policies with aggregate premium up to Rs 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.
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In the budget 2022-23, it was announced that benefit on ULIP premium of over Rs 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 Rs 5 lakh limit.
So, once this budget proposal on life insurance become applicable (from 1st April 2023), LIP benefits on an annual premium up to Rs 2.5 lakh will be tax exempted whereas life insurance benefit on up to Rs 5 lakh per annum premium will remain tax exempted.
Those who are investing in life insurance plans can now avail tax exemption on the insurance proceeds on up to Rs 7.50 lakh annual premium if they pay Rs 2.5 lakh for ULIPs and Rs 5 lakh for other than ULIP life insurance plans.