Guidelines for charging Income-tax on life insurance policies


The Indian Ministry of Finance’s Department of Revenue recently has issued Circular No. 15 of 2023, outlining crucial guidelines, effective from the assessment year 2024-25, pertain to the income-tax exemption on sums received under life insurance policies. The circular introduces several amendments and modifications, affecting individuals who hold life insurance policies.

The Finance Act, 2023, introduced significant changes to clause (10D) of section 10 of the Income-tax Act, 1961. These amendments are aimed at clarifying and streamlining the tax treatment of sums received under life insurance policies. The key amendments are as follows:

Premium Threshold: The new amendments state that any sum received under a life insurance policy issued on or after April 15, 2023, excluding unit-linked insurance policies, will not be exempt if the annual premium payable for any year during the policy’s term exceeds Rs 5,00,000.

Aggregate Premium Limit: If a policyholder holds multiple life insurance policies issued after April 1, 2023, the total aggregate premium paid for all these policies should not exceed Rs 5,00,000 per year for any of the previous years during the term of these policies.

Exception for Death Claims: The amendments exempt sums received on the death of the insured person from these provisions, ensuring that beneficiaries do not face tax implications for death claims.

Eligible Life Insurance Policy: Any life insurance policy (excluding unit-linked insurance policies) issued on or after April 1, 2023, falls under this category.

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