CBDT Issues New Tax Guidelines for Income from High Premium Insurance Policies
India's Central Board of Direct Taxes (CBDT) has issued revised guidelines for income from high-premium life insurance policies. The new tax rule will now tax proceeds from a life policy with an annual premium greater than INR500,000.
This new policy makes exemptions under the country's Income Tax Act inapplicable, and the changes will take effect in FY2023-24. The CBDT also clarified that if the annual premiums for all policies exceed INR500,000 in a fiscal year, the same rule will apply across multiple policies. The aggregate majority amount from all combined policies would be taxed.
The amended rule did, however, include some important exceptions. According to a news release, the demise of the policyholder grants tax exemption for proceeds, as well as unit-linked insurance plans (ULIPs) that have also retained their exemption status.
According to country insiders, these revisions could have a negative impact on traditional insurance plans such as endowment, money-back, and retirement plans. As a result, there are now benefits to owning ULIPs, which are financial products that combine investment and life insurance coverage into a single plan.
ULIP benefits include customizable life insurance, investment options, liquidity and partial withdrawal, goal-oriented planning, and tax benefits at the entry, switching, and exit stages, according to industry experts in the country.