Life insurance plans provide financial security to your family in case of your untimely demise and offer tax benefits on the premiums paid and the benefits received. The Indian Income Tax Act of 1961 allows taxpayers to claim deductions on their taxable income for the premiums paid toward life insurance policies.
The best life insurance policy will offer these tax benefits under the applicable sections of the Income Tax Act.
Understanding the income tax benefits of life insurance plans can help individuals make informed decisions about their financial planning and taxation. Let us understand Income tax benefits on Income Tax based on Budget 2023.
What Does Budget 2023 Say about Life Insurance?
The Finance Bill 2023 has added two new provisions to clause (10D) of Section 10 of the Income Tax Act.
- The first provision states that income from life insurance plans, except for a unit-linked insurance policy issued on or after April 1, 2023, will not be tax-exempt if the premium payable for any previous year during the term of the policy exceeds five lakh rupees.
- The second proviso states that if a person pays the premium for multiple life insurance policies (excluding unit-linked insurance policies) issued on or after April 1, 2023, the life insurance tax exemption clause will only apply to those policies where the total premium amount does not exceed five lakh rupees in any previous year during the term of the policy.
- However, these provisions will not apply to any amount received on the death of an insured person. Therefore, income from such policies exceeding the premium limit will be taxable under “Income from other sources.
If you take a life insurance policy after April 1, 2023, whose premium is payable exceeds five lakh rupees, it will be subject to tax. However, suppose you buy more than one life insurance policy (excluding unit-linked policies) after April 1, 2023. In that case, the tax exemption will only apply to policies where the total premium paid does not exceed five lakh rupees in any previous year during the policy’s term. And there shall be no change amount received on the death of a person, i.e., it will still be exempted from any tax.
With Tata AIA Life Insurance, you can safeguard the financial future of your loved ones with a reliable and affordable life insurance plan and also claim life insurance tax benefits, as applicable.
- When you buy life insurance, it offers you several income tax benefits. Taxpayers can claim deductions on the premiums paid towards life insurance policies u/s 80C of the Income Tax Act up to a maximum limit of ₹1,50,000. Furthermore, the maturity proceeds received under the policy are exempt from taxation under Section 10(10D) of the Income Tax Act, 1961.
- However, per the Finance Bill 2023, the exemption limit on the premium payable for any previous year during the policy term is capped at ₹5,00,000, except for Unit-Linked Insurance Policies issued on or after April 1, 2023. Therefore, if the premium payable exceeds ₹5,00,000 in a financial year, the Income from the policy will be taxable under “Income from other sources.”
- It is important to note that these provisions will not apply to any amount received on the death of an insured person. In addition, the exemption clause will only apply to policies where the total premium amount does not exceed ₹5,00,000 in any previous year during the policy term.
In conclusion, life insurance plans offer not only financial protection and provide several income tax benefits to the policyholders. Therefore, understanding the income tax laws and provisions related to life insurance policies is essential to maximise the benefits and make informed decisions regarding financial planning and taxation.