New income tax rules for life insurance proceeds | Fusion - WeRIndia

The Indian government has announced changes to income tax rules related to life insurance policies. The new rules will come into effect from 1 April 2023.

The changes aim to simplify the tax structure and make it easier for taxpayers to understand their liabilities.

Under the new rules, proceeds from a life insurance policy will be tax-free, provided the premium paid is not more than 5% of the sum assured.

If the premium paid is more than 5% of the sum assured, then the tax exemption will be available only for the portion of the premium that is within the limit of 5% of the sum assured.

The changes will also impact the tax treatment of maturity proceeds from life insurance policies.

Under the new rules, maturity proceeds from policies that were issued before 1 April 2023 will continue to be tax-free. However, for policies issued after 1 April 2023, the maturity proceeds will be taxable if the premium paid during any year of the policy term exceeds ₹2.5 lakhs.

The new rules also introduce changes to the tax treatment of unit-linked insurance plans (ULIPs). Under the new rules, the tax treatment of ULIPs will be similar to that of mutual funds.

The gains made from ULIPs will be taxed at the time of redemption or switching. However, the gains made from ULIPs that have a premium of up to ₹2.5 lakhs per annum will continue to be tax-free.

The changes to the income tax rules related to life insurance policies are significant. They aim to simplify the tax structure for taxpayers. Taxpayers need to understand these changes and how they impact their liabilities.

The changes are expected to have a significant impact on the insurance sector. Also, they are likely to make life insurance policies more attractive to investors.

Image by Donate PayPal Me from Pixabay (Free for commercial use)

Image Reference: https://pixabay.com/vectors/family-umbrella-insurance-life-6593160/