The Central Board of Direct Taxes (CBDT) has introduced new tax rules for life insurance policies with premiums exceeding Rs 5 lakh. Under the new rules, sums received from such policies will no longer be exempt from tax. These rules are effective from the assessment year 2024-25. This means that policyholders will have to pay tax on the entire amount received. Also, this amount will be including the sum assured and any bonuses.
What are the new tax rules?
The new tax rules are as follows:
- Sums received from life insurance policies with premiums exceeding Rs 5 lakh will no longer be exempt from tax. These will be effective from the assessment year 2024-25.
- The new rules apply to all life insurance policies, except unit-linked insurance policies.
- The new rules also apply to policies issued on or after April 1, 2023. The new rules will apply even if the premium was paid before that date.
- There are some exceptions to the new rules. For example, if the policy is taken for a dependent’s benefit, it will be exempted. Additionally, the exemption will also apply if the total premium paid for all life insurance policies in a financial year does not exceed Rs 5 lakh.
Why are the new tax rules being introduced?
The new tax rules are being introduced to prevent misuse of life insurance policies for tax evasion. In the past, some people have taken life insurance policies with high premiums in order to claim tax benefits, even though they did not need the insurance cover. The new rules will discourage those who practice tax evasion.
What are the implications of the new tax rules?
The new tax rules will have a number of implications for policyholders. First, it will mean that they will have to pay tax on the entire amount received from their life insurance policies. These amounts will include the sum assured and any bonuses. This could lead to a significant increase in their tax liability. Second, the new rules may discourage people from taking life insurance policies, especially those with high premiums.
What should policyholders do?
Policyholders who have life insurance policies with premiums exceeding Rs 5 lakh should review their policies in light of the new tax rules. If they are concerned about the tax implications, they should consult with a financial advisor.
Conclusion:
The new tax rules for life insurance policies with premiums exceeding Rs 5 lakh are a significant change. Policyholders should be aware of the implications of these rules and take steps to protect themselves from any negative consequences.