In the Union Budget 2023, Finance Minister Nirmala Sitharaman has announced major changes in the tax rules for life insurance policies. He has said that except for ULIP, all other life insurance policies will not get tax benefit if the premium is more than Rs 5 lakh.
New Tax Rule on Life Insurance Policies : In the Union Budget 2023, there has been a major change in the tax rules for insurance policies. Now the tax benefit will not be available on the policy with a premium of more than Rs 5 lakh. The new rule will come into effect from April 1, 2023. Removal of tax benefit means that the amount received on maturity of the policy will be taxable. Some insurance agents and banks are showing more interest in selling policies with a premium of more than Rs 5 lakh before the start of the new financial year. If an insurance agent asks you to buy a policy with a premium of more than Rs 5 lakh, then you can understand the reason.
Experts say that insurance companies and brokers are advising customers to take advantage of tax-free maturity by buying policies with a premium of more than Rs 5 lakh before April 1, 2023. But, you need to be careful with this. It will not be beneficial for you to buy such a policy just to avail tax-free maturity.
What has been said in the Union Budget 2023 ?
Finance Minister Nirmala Sitharaman had said in the budget speech on February 1 that insurance policies other than ULIPs whose premium is more than Rs 5 lakh will not get the benefit of tax-free maturity amount if purchased from April 1, 2023. The government actually wants to discourage investment in high value policies to avail tax benefits.
The rule will not apply in case of death of the policyholder
You need to keep in mind that the new rule will not apply in case of death of the policyholder. This means that on the death of the policyholder, the amount (sum assured) received by the nominee will be completely tax-free. The new rule will be applicable only on policies issued on and after April 1. All the policies sold earlier will not come under the purview of the new rule.
The question is should you take advantage of the tax-free maturity?
Abhishek Bondia, Managing Director, insurance broker SecureNow.in said, “I would say that you should not buy such a policy. First, generally the returns from endowment policies are very less. There are other options available for your investment. Second, Never invest in a hurry. It is important to check your liquidity and investment preferences before investing.” Melvin Joseph, Founder, Finvin Financial Planners, says that despite the tax benefits, life insurance policies are not a good investment option.
