The Central Board of Direct Taxes (CBDT) of India has issued updated guidelines regarding income from life insurance policies with high premiums. Under the new tax rule, proceeds received from a life policy with an annual premium exceeding INR500,000 are now subject to taxation.
This new guideline renders exemptions under the country’s Income Tax Act inapplicable, and changes made will be effective starting FY2023-24. The CBDT also clarified that the same rule will apply across situations with more than one policy if the annual premiums for all policies exceed INR500,000 in a fiscal year. The cumulative majority amount from all combined policies would be subject to tax.
There were, however, some key exceptions noted in the amended rule. According to a news release, the policyholder’s demise grants tax exemption for proceeds, as well as unit-linked insurance plans (ULIPs) that have also retained their exemption status.
Insiders in the country say that these revisions could negatively impact traditional insurance plans such as endowment, money-back, and retirement plans. Consequently, there are now advantages to owning ULIPs, a financial product that combines investment and life insurance coverage under one plan.
Some advantages for ULIPs listed by industry experts in the country include a customizable life cover, investment choice, liquidity and partial withdrawal, goal-oriented planning, and tax benefits across entry, switching, and exit stages.
Elsewhere in the country, a new report from GlobalData warned that frequent natural catastrophic events, such as the heavy rainfall in Northern India and cyclone Biparjoy hitting Gujarat and Rajasthan, will challenge Indian property insurance profitability.
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