How Union Budget 2023 Changes Tax Benefits on Life Insurance
If you are searching for the best life insurance plans, then you should naturally uncover several aspects pertaining to the same. These include the policy type, features, coverage, premium, and of course, the tax benefits applicable on life insurance plans. Coming to tax benefits, there has been a key change implemented by the 2023 Union Budget in this regard.
Union Finance Minister Nirmala Sitharaman presented the very first Amrit Kaal Budget on the 1st of February, 2023. This Budget had several welfare policies and growth-oriented measures with a view towards boosting overall infrastructure development, inclusivity, and economic progress. However, there has been a change in the entire system of tax benefits applicable on life insurance as per the provisions of the Budget.
Budget Proposal for Taxing Life Insurance Policies with Premiums above Rs. 5 Lakh
The Union Budget has proposed taxation for the maturity proceeds from life insurance policies in a specific category. Based on this proposal, in case customers pay premiums exceeding Rs. 5 lakh annually for their insurance policies, then their maturity proceeds or income will be taxed accordingly. This was tax-exempted earlier.
The Union Finance Minister also stated that income from policies with up to Rs. 5 lakh in aggregate premium will be exempted from taxes. This applies for policies that were issued on or post 1st April, 2023. She has also mentioned that this new change will not have any effect on tax exemptions on the death benefits from life insurance policies, while not applying to policies bought before 31st March, 2023. Hence, if someone has several life insurance plans issued after 1st April, 2023, and the combined premium surpasses Rs. 5 lakh, the maturity proceeds will be subjected to taxes.
The Union Budget for 2023 did not have any specific announcements pertaining to the Section 80C tax deductions. The Government has proposed an increase in the limit for tax rebates to Rs. 7 lakh as part of the New Tax Regime which is presently Rs. 5 lakh under both the New and Old Tax Regimes. The slabs will also undergo adjustments in the New Tax Regime, coming down to five from six and scaling up the tax exemption threshold to Rs. 3 lakh. Yet, all the changes have been proposed as a part of the New Tax Regime. This regime does not have any deductions under Section 80C and other sections which are provided in the older tax framework.
The Union Budget proposal or the new change does not apply to ULIPs or unit-linked insurance plans. There could also be a rush to avail of high-value insurance products before the 1st April deadline as per several experts. Prospective customers should keep this new regulation in mind and either accept the new taxation rule for their maturity proceeds or make sure that their cumulative premiums do not surpass Rs. 5 lakh per year.