The Buyt Desk
Insurance plans with hefty premiums will be now taxed. Non-unit linked insurance plans (ULIP) with more than Rs 5 lakh premium will no longer enjoy tax exemption. The objective is to restrict income tax exemption from proceeds of insurance policies having extremely high value.
From April 1, 2023, if the aggregate premium for non-ULIP life policies is higher than Rs 5 lakh, then the individual will have to pay tax on it. Though the claim received on the demise of the insured person will remain tax-free. Insurance policies issued till March 31, 2023, will also remain unaffected.
You could have one or more insurance policies where the aggregate premium is more than Rs 5 lakh annually, the sum received will now be taxable. Earlier ULIPs having a yearly premium of more than Rs 2.5 lakh annually was made taxable in the budget 2021. Experts said the government’s new move is negative for the insurance industry.
The bright side of this decision is that it will discourage people from buying a high-value traditional insurance plan. It will enhance the emphasis on term plans and pure risk covers.
In the run-up to the budget insurance industry expected that the income tax deduction under Income Tax Act 1961 will be revised. People will get more incentive to invest in insurance. On the contrary, the budget imposed a tax on non-UlLIPs.
The industry feels that this will negatively affect the insurance business. Also, people falling under the new tax regime and having an income of up to Rs 7 lakh in a year will not have to pay any tax. Eventually, this will have an undesirable impact on the insurance sector.
Finance Minister Nirmala Sitharaman made it clear in her budget speech that this provision is an attempt to prevent large tax savings by ultra HNIs via insurance policies.
