Those who have taken life insurance policy before 1 April 2023 i.e. till 31 March 2023 will not come under the purview of the new rule. ULIP holders will also not come under the purview of this rule.
There is a lot of misunderstanding among people regarding the tax treatment of premiums paid for life insurance policies and the maturity amount. After the changes made in the rules in Budget 2023, this misunderstanding has increased further. The provisions proposed in Budget 2023 have also come into force from 1 April 2023.
At present, the work of filing Income Tax Return ie ITR for the assessment year 2023-24 is also going on at a fast pace. That’s why today let’s talk about the new tax rules related to life insurance policy. Along with this, we will also understand those tax rules which are already effective from 1 April 2023.
What do the new rules say
The Finance Bill 2023 added the sixth and seventh proviso to section 10 (10D) of the Income Tax Act, 1961. As per the sixth provision of section 10(10D) with effect from 1st April 2023, if the amount of premium paid for a life insurance policy exceeds Rs 5 lakh in any one financial year during the policy term, then the policyholder will get The maturity amount will be taxable. That is, there will be no tax exemption under section 10(10D) on the amount of maturity.
On the other hand, according to the seventh provision of section 10(10D), if you are paying premium for more than one policy, then after adding the premiums paid for all the policies, in case the annual premium exceeds Rs 5 lakh, then that policy But the amount of maturity payable will be taxable after adding the premium for which the annual premium is exceeding the limit of Rs 5 lakh.
Those who have taken life insurance policy before 1 April 2023 i.e. till 31 March 2023 will not come under the purview of the new rule. ULIP holders will also not come under the purview of this rule. If the insured dies during the policy term, the amount (death benefit) received by the nominee will also not be taxable.
How will the taxable amount be calculated?
The amount left after deducting the total premiums paid from the maturity amount will be taxable. Which will be calculated as income from other sources and the insured will have to pay tax on that amount as per his tax slab.
But if you have availed deduction u/s 80C for every single financial year on the premiums paid during the policy term, then the taxable maturity amount will be calculated as follows – Amount of premiums out of the total annual premiums paid – on which you have taken the policy The amount left after deducting the deduction claimed under 80C – from the maturity amount every year during the period will be taxable.
Now let’s talk about those rules which are effective before 1 April 2023.
Rules for deduction on premium
The premium paid for life insurance policy for self, spouse and children is eligible for deduction under 80C up to a maximum of Rs 1,50,000 in a financial year along with other investment options. Most of the people feel that this benefit is available on the entire premium amount. But it is not so in all cases. Certain conditions have been set regarding this:
- If a policy is issued on or after April 1, 2012, the annual premium should not exceed 10% of the sum assured. That is, for example, if the sum assured is Rs 1 lakh, then the annual premium should not exceed Rs 10,000. Even if you pay a premium of Rs 11,000 on this policy, the benefit of deduction will be available only up to Rs 10,000.
- For policies issued between April 1, 2003 to March 31, 2012, the premium can be up to 20% of the Sum Assured. That is, the benefit of deduction will be available on the amount up to 20 percent.
- There is no limit for policies issued before March 31, 2003. That is, no matter how much the premium is, the benefit of deduction will be available on the whole.
- For policies issued after April 1, 2013, premiums up to a maximum of 15% of the sum assured can be claimed as tax exemption under section 80C, if the insured is suffering from a disability specified in section 80U or a disease specified in section 80DDB. Is. Earlier there was no such provision.
Tax rules regarding maturity benefit
Most people understand that the maturity amount (Sum Assured + Bonus) received by the policy holder after the completion of the stipulated policy term is not taxed. But it is not like that.
As per section 10 (10D) of the Income Tax Act, 1961, if the policy holder does not fulfill the conditions for availing deduction under 80C in any financial year during the policy term, the premium and sum If the ratio of the assured is fixed, then the entire maturity amount will be added to the income of the insured and the insured will have to pay tax according to his tax slab. But the death benefit received by the nominee is always tax-free. Also, there is no provision of any upper limit (maximum limit) regarding the tax benefit available under section 10 (10D).
TDS on maturity
According to the change in section 194DA (effective from September 2019), if you do not get tax exemption on the maturity amount (Sum Assured + Bonus), then the insurance company will deduct 5% TDS on the maturity amount of more than Rs 1 lakh, Whereas before September 1, 2019, there was only a provision of 1% TDS. Means TDS has been increased. But here a little relief has also been given.
This relief has been given in such a way that 5% TDS will not be deducted on the full maturity amount, but on the remaining amount after deducting the full premium from the maturity amount. However, if the life assured dies during the policy term, the maturity amount received by the nominee is tax-free and TDS is also not deducted.
