• Notification Date: 21-02-2024
  • Notification No: N/A

Income tax applicable on Life Insurance Policy

Although life insurance policy has become a necessity after the corona pandemic, even today most people see it only as a means to save tax. 

This type of policy provides triple benefits, due to which most people see it as a good option. But, in the budget of 2023, the government has changed the rules related to insurance policy. 

In fact, in the budget, the government had announced that if the annual premium of a life insurance policy is more than Rs 5 lakh, then income tax will have to be paid on its returns. 

Now the Central Board of Direct Taxes (CBDT) has issued a notification stating that if a premium of more than Rs 5 lakh is paid on a life insurance policy, then its return will be considered part of the income and tax on it will be taxed. Income tax will have to be paid. 

When will it be applicable on the Purchased Policy? 

Citing the 16th amendment of Income Tax, CBDT has said in its notification that according to Rule 11UACA, the new rule will be applicable to life insurance policies purchased after April 1, 2023. 

Under this, if the total premium of policies in a year is more than Rs 5 lakh, then income tax will be levied on the income earned from it i.e. returns. 

For having More than One Policy: 

In the changed rules regarding insurance policy, it has been clearly stated that if there are more than one policy, then the premium of all will be calculated together. If their premium does not exceed Rs 5 lakh, then the return received on its maturity will be completely tax free. 

Under Section 10(10D) of Income Tax, income tax exemption is available on the amount received on maturity of the insurance policy. But now, if the premium amount is more than Rs 5 lakh then the money received on its maturity will come under the ambit of income tax. 

Tax Exemption is still Available: 

The government has changed the rules of life insurance, but you will still get the option of tax exemption. In fact, despite the change in the rules, it has been said that the limit of Rs 5 lakh will not be applicable on any ULIP insurance policy. 

It has been said in the Budget 2023-24 that except ULIP policies, the rule of premium of Rs 5 lakh will be applicable on all other policies. Apart from this, even if the insured dies before the maturity of the policy, the entire amount will be out of the scope of income tax. Even if its premium is more than Rs 5 lakh.