The Income Tax Department notified the income tax liability on any sum received under a life insurance policy when the yearly premium exceeds Rs 5 lakh.
The circular issued on Wednesday is in line with Finance Minister Nirmala Sitharaman's February announcement in the budget for 2023-24.
From assessment year 2024-25, any sum received under a life insurance policy—except in the cases of unit-linked plans—issued on or after April 1, 2023, would not be exempt of tax if the premium payable is over Rs 5 lakh for any of the previous years during the term period.
Before the amendment, individuals enjoyed an income tax exemption under Clause (10D), Section 10 of the Income-Tax Act, 1961. Any sum received under a life insurance policy, including the sum allocated by way of bonus on such a policy, did not attract tax in most cases.
However, the change in law would retain the income tax break only if:
The premium paid by the individual is on more than one life insurance policy (excluding Ulips) issued on or after April 1, 2023, and the aggregate premium does not exceed Rs 5 lakh for any of the previous years during the term of the policies.
The sum is received on the death of a person.
In 2021, the department had issued guidelines on the taxability of Ulips when the premium exceeded Rs 2.5 lakh if the policy issue date was after Feb. 1 that year.
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