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For premiums beyond this limit, the proceeds will be added to the income.
New Delhi:
The Income Tax department has prescribed a mechanism for calculating income proceeds from life insurance policies where aggregate annual premium exceeds Rs 5 lakh.
The Central Board of Direct Taxes (CBDT) has notified the Income Tax Amendment (Sixteenth Amendment), Rules, 2023, prescribing rule 11UACA for calculating income with respect to sum received upon maturity of life insurance policies wherein the amount of premiums exceed Rs 5 lakh and such policy/policies are issued on or after April 1, 2023.
According to the change, for policies issued on or after April 1, 2023, the tax exemption on maturity benefits under Section 10(10D) will only be applicable if the aggregate premium paid by an individual is up to Rs 5 lakh a year.
For premiums beyond this limit, the proceeds will be added to the income and taxed at applicable rates.
The change in tax provision with regard to life insurance policies, except ULIP, was announced in the Union Budget 2023-24.
AMRG & Associates Joint Partner (Corporate & International Tax) Om Rajpurohit said according to the formula, any surplus amount received on maturity would be subject to tax under the head “income from other sources”.
AKM Global Tax Partner Amit Maheshwari said the provision was introduced to nullify tax advantages given to investments disguised as insurance policies. Since this provision would impact many individuals, especially the rich, CBDT has issued guidelines to remove difficulties, which is a welcome move.
The guidelines are elaborate and give various examples on the computation of the consideration eligible for exemption, Maheshwari added.
The taxation provision for the amount received on the death of an insured has not been changed and that continues to remain exempt from income tax. PTI JD TRB HVA DRR
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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