The Revenue Tax division on Wednesday prescribed a mechanism for calculating earnings proceeds from life insurance coverage insurance policies the place mixture annual premium exceeds Rs 5 lakh.
The Central Board of Direct Taxes (CBDT) has notified the Revenue Tax Modification (Sixteenth Modification), Guidelines, 2023, prescribing rule 11UACA for calculating earnings with respect to sum obtained upon maturity of life insurance coverage insurance policies whereby the quantity of premiums exceed Rs 5 lakh and such coverage/insurance policies are issued on or after April 1, 2023.
In line with the change, for insurance policies issued on or after April 1, 2023, the tax exemption on maturity advantages below Part 10(10D) will solely be relevant if the mixture premium paid by a person is as much as Rs 5 lakh a 12 months.
For premiums past this restrict, the proceeds shall be added to the earnings and taxed at relevant charges.
The change in tax provision with regard to life insurance coverage insurance policies, besides ULIP, was introduced within the Union Finances 2023-24.
AMRG & Associates Joint Associate (Company & Worldwide Tax) Om Rajpurohit mentioned in line with the formulation, any surplus quantity obtained on maturity can be topic to tax below the top “earnings from different sources”.
AKM World Tax Associate Amit Maheshwari mentioned the availability was launched to nullify tax benefit given to investments disguised as insurance coverage insurance policies. Since this provision would affect many people, particularly the wealthy, CBDT has issued tips to take away difficulties, which is a welcome transfer.
The rules are elaborate and provides varied examples on the computation of the consideration eligible for exemption, Maheshwari added.
The taxation provision for the quantity obtained on the demise of an insured has not been modified and that continues to stay exempt from earnings tax.