The Central Board of Direct Taxes (CBDT) has introduced new regulations for computing income from life insurance policies with premiums surpassing Rs 5 lakh. Notably, Section 10(10) of the Income Tax Act will no longer apply to such policies, effective from April 1, 2023.
It may be noted that Section 10(10) typically exempts specific sums received from life insurance policies, including bonuses.
However, the CBDT’s recent directives nullify this exemption for policies with premiums exceeding Rs 5 lakh. This move aims to provide clarity and prevent ambiguity when calculating income from substantial life insurance policies.
What does this mean?
As outlined in a CBDT notification, the amendment pertains to clause (10D) of section 10 of the Income-tax Act, 1961. This clause grants income tax exemption on sums received from life insurance policies, encompassing bonus allocations, with specific exclusions.
Starting from the assessment year 2024-25, sums received from life insurance policies—excluding unit-linked insurance policies—issued on or after April 1, 2023, will no longer be exempt if the premium payable for any previous year during the policy’s term exceeds Rs 5 lakh.
Additionally, in cases where premiums are payable for multiple life insurance policies (excluding unit-linked insurance policies) issued post April 1, 2023, exemption under the mentioned clause will apply only to policies where the total premium doesn’t exceed Rs 5 lakh for any previous year during the policy’s tenure.
However, these provisions will not be applicable in cases of sums received upon an individual’s demise.
The CBDT circular said: “It may be noted that Finance Act, 2021 had earlier inserted, fourth to seventh provisos in clause (10D) of section 10 to provide that the sum received under any unit linked insurance policy [ULIP] (except any such sum received on the death of a person), issued on or after the 01.02.2021 shall not be exempt under said clause, if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000 (fourth proviso).”
“It was also provided that if the 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 policies (fifth proviso),” it added.
Source By: indiatoday
