As the sun sets in August, we find ourselves well into the new financial year that began on April 1, 2023. Let’s look at some significant income tax rule changes quietly settling into our economic landscape. These shifts, ignited by the Union Budget 2023 and ratified through the Finance Bill 2023, bring interesting modifications for those who hold life insurance policies with substantial premiums.
A standout revelation from these changes is that life insurance policy payouts will now face taxation if the annual premium crosses ₹5 lakh. It’s important to note that this alteration doesn’t apply to all life insurance payouts—instead, it zeros in on policies that carry a weighty annual premium.
Union Finance Minister Nirmala Sitharaman had articulated this move while presenting the Union Budget 2023, stating that “income from only those policies with aggregate premium up to ₹5 lakh shall be exempt.” This modification maintains the tax exemption on payouts in case of the policyholder’s demise. Additionally, this change doesn’t affect insurance policies issued up until March 31, 2023.
If we rewind a bit to the Union Budget 2022, you might remember the introduction of income tax on Linked Insurance Plans (ULIPs) with annual premiums surpassing ₹2.5 lakh. As the months have rolled by, this fiscal year, starting April 1, 2023, brings an extended exemption horizon. ULIP proceeds with annual premiums up to ₹2.50 lakh, and life insurance policy payouts with annual bonuses reaching up to ₹5 lakh remain within the realm of tax exemption.
As we step into the latter part of the year, more tax changes come into play:
- Tax Regimes: The new income tax slab has been the default choice for earning individuals from the first day of this financial year. Those who prefer the old tax regime need to opt for it explicitly.
- Unchanged Deductions: The ₹50,000 standard deduction applies to both the old and new tax regimes.
- Increased Tax-Free Income: Salaried individuals can now enjoy a higher tax-free income threshold of ₹7 lakh per annum from April 1, 2023.
As we stand on the cusp of September, these tax changes continue to ripple through our financial life. The alteration in taxation on high-premium life insurance policies underscores the government’s approach towards equity. In this evolving landscape, staying informed and making informed financial decisions remains key. With these changes in mind, we can chart a steady course through taxes, confidently securing our financial footing.