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The Central Board of Direct Taxation (CBDT) has clarified pure term insurance policies are still exempted from taxation irrespective of its premium amount.
Also, premium paid toward pure term policies (Term policies that do not offer return of premium amount) will not be included to calculate the total premium amount for taxation purpose.
Further, CBDT clarified that GST component should not be included for the purpose of calculating premium for taxation purpose.
From April 1, 2023, the government did away with the tax-free maturity proceeds on high value insurance policies. Investors paying premium of over Rs.5 lakh to buy life insurance policies other than ULIPs and term insurance 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.
Remember that the maturity proceeds from ULIPs are exempted from taxation if the premium is up to Rs.2.50 lakh in a year.
In a way, a policyholder can still claim tax exemption if she buys traditional policies with premium amount of up to Rs.5 lakh and ULIP with premium amount of up to Rs.2.50 lakh.
Overall, premium paid towards whole life, money back and endowment or any policy with maturity benefits will be considered to arrive at total premium payment.
Also, the premium calculation will be done at PAN level.
The government clarified that the maturity proceeds from life insurance policies will be added to income from other sources for taxation.
Further, CBDT clarified that maturity proceeds on insurance policies issued after April 1, 2023 will be taxed if the aggregate premium amount exceeds Rs.5 lakh. However, not all maturity proceeds will be taxed. The tax scenario will change if exemption is claimed in the previous year and differ in case of multiple policies, said CBDT.
Click here to look at various scenario to arrive at taxation.