PROPOSALS IN FINANCE BILL
(1) Finance Bill 2023 have inserted a new proviso (sixth proviso) to clause (10D) of the section 10 of the Act according to which income from life insurance policy (other than a unit linked insurance policy) will not be exempt if issued on or after the 1st April, 2023, if the amount of premium payable for any of the previous year during the term of such policy exceeds five lakh rupees.
(2) A new proviso (seventh proviso) to clause (10D) of section 10 of the Act have also been inserted to provide that if the premium is payable by a person for more than one life insurance policies (other than unit linked insurance policy), issued on or after the 1st April, 2023, the provisions of this clause shall apply only with respect to those life insurance policies (other than unit linked insurance policies), where the aggregate amount of premium does not exceed five lakh rupees in any of the previous years during the term of any of those policies.
(3) The above provisions shall not apply to any amount received on the death of a person.
(4) Hence, income from such policies will be chargeable to tax under the head “Income from other sources “
It is to mentioned that Finance Act, 2021, had provided that the sum received under a ULIP (Barring the sum received on death of a person), issued on or after the 01.02.2021 shall not be exempt if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000. It was also provided that if premium is payable for more than one ULIPs, issued on or after the 01.02.2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years during the term of any of the policy. Circular no 02 of 2022 dated 19.01.2022 was issued to explain how the exemption is to be calculated when there is more than one policy.
PURPOSE OF EXEMPTION OF INCOME FROM LIC POLICIES.
It may be pertinent to note that the legislative intent of providing exemption under clause (10D) of section 10 of the Act has been to further the welfare objective by subsidising the risk premium for an individual’s life and providing benefit to small and genuine cases of life insurance coverage.
MISUSE OF EXEMPTION U/S 10(10D)
However, over the years it has been observed that several high-net-worth individuals are misusing the exemption provided under clause (10D) of section 10 of the Act by investing in policies having large premium contributions (as it is acting as an investment policy) and claiming exemption on the sum received under such life insurance policies.
Basic objective of an insurance policy is to provide insurance cover on the life of an individual to provide security to the family in case of death of the individual. Hence, it is important that insurance cover of maximum amount should be obtained with minimum premium which can be possible if pure insurance plan known as TERM PLAN (in which there is no amount payable to the insurer at the expiry of the insurance term) is taken instead of insurance cum investment plan.
It has been observed that the insurance companies have been more interested in selling insurance cum investment plan than pure insurance plan (term plan) which defeated the purpose of insurance. An individual interested in insurance and investment should buy term plan for insurance purposes and may make investment in debt / equities for investment.
The above provisions in Finance Bill 2023 will discourage individuals to take insurance cum investment plan for persons for paying premium exceeding five lakhs per annum.
Although the finance bill 2023 has come up for premium exceeding five lakhs, however it is suggested that individuals making premium less than rupees five lakhs should not buy insurance cum investment plan rather should buy pure insurance plan ( term plan ) for higher amount of their risk coverage and balance amount may be invested in debt and equities directly or through mutual funds.
BUY PURE INSURANCE PLAN (TERM PLAN)
OBTAIN MAXIMUM COVER ON YOUR LIFE
INVEST SURPLUS FUNDS IN DEBT/ EQUITY
FOR SECURITY OF YOUR FAMILY
YOU DO NOT GET ANY RETURN ON YOUR CAR INSURANCE ?
THAN WHY DO YOU EXPECT ANY RETURN ON YOUR LIFE INSURANC!