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High value proceed from insurance policies is no longer tax free.
In a major tax googly, the Finance Minister has proposed that it would do away with the tax-free maturity proceeds on high value insurance policies.
With this, investors paying premium of over Rs.5 lakh to buy life insurance policies other than ULIPs will have to pay tax on their maturity proceeds. However, if such a policyholder dies then the maturity proceeds for the nominee will be tax free, clarified the government.
Overall, premium paid towards term insurance, whole life, money back and endowment will be considered to arrive at total premium payment. While term insurance generally does not have any maturity proceeds, it will be considered for calculation purpose. Also, the premium calculation will be done at PAN level.
Further, the government clarified that the maturity proceeds from life insurance policies will be added to income from other sources for taxation.
In a Memorandum to the Finance Bill, 2023, the government said that the exemption under section 10 (10D) intends to provide benefit to small and genuine cases of life insurance coverage. However, over the years, it is observed that several high net worth individuals misuse the exemption by investing in policies having large premium contributions to avoid tax, said the government.
Manoj Kumar Jain, MD, Shriram Life Insurance said, “While it not a welcoming move, it’s overall impact on the insurance industry may not be significant. It is important to account for the total number of individuals paying such high premium, which in my knowledge is less.”
The proposed taxability will be applicable for policies issued on or after April 1, 2023.
