Rationalization of exempt income under life insurance policies –
Section 10(10D) of the Income Tax Act, 1961 exempts any sum received under a life insurance policy, including the sum allocated by way of bonus, subject to the condition that the premium payable towards such policy during the year shall not exceed 10% of the actual sum assured.
The government’s intention behind this exemption was to “further the welfare objective by subsidizing the risk premium for an individual’s life and providing benefit to small and genuine cases of life insurance coverage.”
However, several instances were noticed where taxpayers started benefitting from this exemption by investing in policies having higher premium contributions. To deter the misuse, the government has proposed few amendments in budget 2023 which are as follows:
The amendment is proposed for policies issued on or after 1st April 2023.
From the above proposed amendments, it is clear that the objective of the government is to benefit the small and genuine cases.