“Navigate the complex tax implications of life insurance policies, ULIPs, and Keyman policies. Uncover the latest changes introduced by the Finance Act, 2023. Explore the tax status of normal life insurance policies, ULIPs, and Keyman insurance policies, ensuring you make informed financial decisions. From premium limits to TDS considerations, stay updated on the taxation landscape. Prakasha & Co. offers expert insights to guide you through the evolving tax scenarios. Secure your financial future with a comprehensive understanding of life insurance taxation in India.”
Taxability of the maturity sums of the life Insurance policies have been undergoing changes over the last 10 years and now the Finance Act, 2023 has made sea-change. Author has tried to summaries the tax status in different situations. The status of the exemption of maturity sums of life Insurance policies is as under:
(A) Taxation of Normal Life Insurance Policies (other than ULIP and Keyman Insurance Policy)
a) Upto AY 2023-24:
| Policy issue date between |
Premium paid in a year does not exceed the sum assured | Tax Status | Premium exceeding the limits of 10% / 20% | TDS u/s194DA |
|
| Issued prior to 01/04/2003 | No Limit | Exempt | Exempt | No | |
| 01/4/2003 | 31/03/2012 | 20% | Exempt u/s 10(10D) |
Taxable as Capital gain with indexation benefit, if long term. | Yes |
| 01/4/2012 | 31/03/2023 | 10% | |||
b) From AY 2024-25 onwards
| Policy issue date between | Premium paid in a year do not exceed the sum assured | Tax Status | Premium exceeding the limits of 10% / 20%/ 5 Lacs ( of New Policies) per annum |
TDS u/s 194DA | |
| Issued prior to 01/04/2003 | No Limit | Exempt | Exempt | No | |
| 01/4/2003 | 31/03/2023 | 20% | Exempt u/s 10(10D) | Taxable u/s 56(2)(xiii), to the extent of difference in premium paid and sum received (including bonus). If the benefit of insurance premium is already claimed u/s 80C, then such benefit would not be allowed as deduction | Yes |
| 01/4/2012 | 31/03/2023 | 10% | |||
| 01/04/2023 | 10% and the aggregate premiums of new policies should not exceed Rs. 5 Lacs per annum | Exempt u/s 10(10D) | Taxable u/s 56(2)(xiii), to the extent of difference in premium paid and sum received (including bonus). If the benefit of insurance premium is already claimed u/s 80C, then such benefit would not be allowed as deduction. In case aggregate premium of two or more policies exceed Rs,. 5 Lacs, then a policy with premium less than Rs. 5 Lacs may be claimed exempt u/s 10(10D) | Yes | |
If policy sum is received on the death of a person, then the whole amount is exempt irrespective of date of issue of the policy.
(B) Taxation of Unit Linked Insurance Plan:
| Policy issue date between | Premium paid in a year do not exceed the sum assured | Tax Status | Premium exceeding the limits of 10% / 20%/ 2.5 Lacs ( of New Policy) per annum |
TDS u/s 194DA | |
| Issued prior to 01/04/2003 | No Limit | Exempt | Exempt | No | |
| 01/4/2012 | 31/03/2023 | 20% | Exempt u/s 10(10D)
|
i) Single Premium Exceeding Rs. 2.5 Lacs per annum Taxable u/s 45(1B) as Capital gains and indexa_شon not available, if long term. Rate of Tax as prescribed u/s 112A
ii) Other cases (i.e. exceeding 10% / 20% but below Rs. 2.5 Lacs) Taxable as Capital Gains u/s 45(1). Indexa_شon available, if long term |
Yes
|
| 01/4/2021 | 31/03/2023 | 10% | |||
| 01/02/2021 | 10% and the premium of new policy should not exceed Rs. 2.5 Lacs per annum | ||||
(C) Taxation of Key-man Insurance Policy:
C.1 Keyman premiums paid by the employer are deductible under Section 37(1)
C.2 If an employer receives the proceeds on maturity, then taxable u/s 28
C.3 After assignment in favour of keyman, the policy becomes normal policy and taxability would be dependent on the satisfaction of conditions of section 10(10D)
C.4 The surrender value of policy endorsed in favour of employee is to be treated as “profits in lieu of salary” for tax purposes. A profit in lieu of salary is taxable in the hand of employee as per provisions of section 17(3)(ii) of the Income Tax Act, 1961.
Author Bio
Sir,
Do these rules apply to the UTI-ULIP Plan 1971 which is a debt oriented ULIP? Kindly clarify.