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The Impact of the Finance Bill
2023 on your Life Insurance Policy

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Brief Overview of the Finance Bill 2023

Finance budget 2023 has amended provisions of section 10(10D) of income tax Act. Now exemption has been withdrawn for high value life insurance policies effective from 01st April 2023. High value insurance policies would be non-ULP products where annual aggregate premium exceeds Rs 5.00 Lakh in a financial year.

In view of it effective 01st April 2023, any payout including maturity benefit / surrender payout / Policy dividend, bonus etc of traditional life insurance policies with an annual aggregate premium of over ₹5 Lakh will be taxable. However, death benefit will continue to be exempted irrespective of amount of premium. Previously, the maturity benefits of a life insurance policy were exempted from taxation under Section 10(10D) of the Income Tax Act subject to fulfilling conditions under section 10(10D) and sum assured to premium ratio exceeds 10 times.

Which Life Insurance Plans will be Impacted by the New Provisions?

Here is a brief description of what type of life insurance plans will be impacted by the new provisions under the Finance Bill 2023:

Savings Plans

The maturity benefits of a savings plan, such as money-back plans, endowment plans and guaranteed returns plans, will be taxable under Section 10 (10D).

If the policy is purchased on or after 01^st April 2023 and the amount of aggregate annual premium payable in the financial year exceeds Rs. 5 Lakh.

Once policy becomes ineligible, it will remain so till term of policy. Income will be taxed at applicable tax slab rates of policyholder. In case of death, policy will continue to be exempted and claim payout not to be treated as income.

Term Insurance

The proposal will, however, not affect pure term insurance plans that only offer a death benefit to the beneficiaries in case of the unfortunate event such as death of the life assured.

The death benefit of a term plan will still be tax-exempt under Section 10(10D), irrespective of when the policy was purchased or the annual premium.

However, in the case of term plans with a return of premium, the maturity benefit is the total of all the premiums paid throughout the policy term. Hence, if the annual premiums exceed ₹5 Lakh, the maturity benefit of a policy purchased on or after 01^st April 2023 will be taxable.

Unit-Linked Insurance Plans (ULIPs)

ULIPs offer market-linked returns~, as opposed to savings plans that provide guaranteed returns. As an investment-cum-insurance product, the returns on a ULIP vary as per the performance of the market. Exemption under section 10(10D) in ULIP is subject to cap of aggregate premium exceeding Rs 2.50 Lakh effective 01^st Feb 2021.

The changes proposed to Section 10(10D) provisions on the income from life insurance policies will not apply to Unit-Linked Insurance Plans.

Annuity Plans

The changes proposed to Section 10(10D) provisions will not apply to annuity policies.

What is the Premium Limit to Avail of the Section 10(10D) Exemption?
Section 10(10D) of the Income Tax Act in India provides tax exemptions on death benefits. Under this section, any amount received by an individual or Hindu Undivided Family (HUF) as a benefit or bonus on a life insurance policy is exempt from tax. In addition, the maturity proceeds of a life insurance policy are also tax-exempt under Section 10(10D), subject to the following terms:
- The policy should be a qualifying life insurance policy issued on or after April 1, 2003.
- The policy must have been issued on or after April 1, 2012, and the premium paid in any financial year should not exceed 10% of the sum assured.
- In case the policy was issued before April 1, 2012, the premium paid in any financial year should not exceed 20% of the sum assured.
- The policy should not be surrendered or terminated before the end of the term or maturity.
As described earlier, the death benefits paid out on policies purchased after 01 April 2023 will continue to be exempt from tax under Section 10(10D) of the Income Tax Act subject to fulfilling conditions under section 10(10D). The premium amount for the policy can be below or above ₹5 Lakh.

However, the maturity benefit for a life insurance policy will only be taxable for policies purchased after 01st April 2023 and if the annual premium for this policy exceeds ₹5 Lakh.

Know More about our Best-Selling Guaranteed* Return Savings Plan

Non-Linked, Non-Participating, Individual Life Insurance Savings Plan (UIN:110N158V09)

TATA AIA

Fortune Guarantee Plus

Key Features:

Get Guaranteed^@ Tax^# Free Income
Get your premium amount back^% and save more
Get Health cover against 40 Critical^## Illnesses
Save income tax^# up to 46,800⁺⁺

^@T&C apply

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Frequently Asked Questions

Who will be taxed if the policy has been purchased for a minor?

Suppose the life insurance policy with an annual premium of more than ₹5 Lakh has been purchased on behalf of a minor. In that case, the policy will be managed by the parents or the policyholder until the child is an adult. Therefore, the maturity benefits will be paid out to the child when the policy matures, and Income paid to son would be taxable in the hands of the child.
Will tax deductions under section 80C on premium paid be applicable for TRADITIONAL PLAN policies?

Yes, Income tax deductions can be claimed under section 80C on premiums paid up to INR 1,50,000 per annum.
Will my maturity benefits be taxable if I renew my policy after 01 April 2023?

Yes, suppose you need to renew a lapsed policy issued after 01 April 2023 with an annual premium of over ₹5 Lakh. In that case, the maturity benefits you receive will be taxable as per the new proposal in the Finance Bill 2023.
Will the maturity benefits be taxable after 01^st April 2023 if one purchases multiple life insurance policies?

If the total annual premium of all your life insurance plans exceeds ₹5 Lakh, the maturity benefit you receive on policy maturity will be taxable. However, if the sum of all three policies’ annual premiums is below ₹5 Lakh, the maturity amount will be tax-exempt under Section 10(10D).
What will be the tax implications on the death of a life insured?

The amount received on death of the life insured shall continue to be tax free irrespective of the threshold of INR 5,00,000 annual aggregate premium.

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Disclaimer
- The complete name of Tata AIA Fortune Guarantee Plus is Tata AIA Life Insurance Fortune Guarantee Plus (UIN: 110N158V09) - Non-Linked, Non-Participating, Individual Life Insurance Savings Plan
- ^*“Guaranteed Annual Income” shall be a fixed percentage of the Annualised Premium / Single Premium (excluding discount) payable in a year. Guaranteed Annual Income as per the chosen Income Frequency shall commence after maturity till the end of the Income Period, irrespective of survival of the life insured(s) during the Income Period.
- ^#Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfillment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implication mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
- ^%Return of Premium shall be the return of Total Premiums Paid (excluding loading for modal premiums, discount, any extra premium, rider premium and taxes) by the policyholder and shall be payable at the end of the Income Period irrespective of survival of the life insured(s) during the Income Period.
- ^##Available under Regular Income with an Inbuilt Critical Illness Benefit option
- ⁺⁺Tax benefits of up to ₹46,800 u/s 80C is calculated at highest tax slab rate of 31.20% (including cess excluding surcharge) on life insurance premium paid of ₹1,50,000. Tax benefits under the policy are subject to conditions laid under Section 80C, 80D,10(10D), 115BAC and other applicable provisions of the Income Tax Act,1961. Good and Service tax and Cess, if any will be charged extra as per prevailing rates. The Tax Free income is subject to conditions specified under section 10(10D) and other applicable provisions of the Income Tax Act,1961. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
- This product is underwritten by Tata AIA Life Insurance Company Ltd.
- The plan is not a guaranteed issuance plan and it will be subject to company’s underwriting and acceptance.
- Insurance cover is available under this product.
- For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale. The precise terms and condition of this plan are specified in the Policy Contract.
- Buying a Life Insurance Policy is a long-term commitment. An early termination of the Policy usually involves high costs and the Surrender Value payable may be less than the all the Premiums Paid.
- In case of non-standard lives and on submission of non-standard age proof, extra premiums will be charged as per our underwriting guidelines.
- Risk cover commences along with policy commencement for all lives, including minor lives.
- Policies sourced through PoS Channel will not have any medical examination. This plan is not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.
- All Premiums and interest payable under the policy are exclusive of the taxes, rider premiums, underwriting extra premiums, loading for modal premiums, if any which will be entirely borne/ paid by the Policyholder, in addition to the payment of such Premium or interest. Tata AIA Life shall have the right to claim, deduct, adjust and recover the amount of any applicable tax or imposition, levied by any statutory or administrative body, from the benefits payable under the Policy.
- Above views are based on proposal by Finance Bill 2023 read with existing provisions of income-tax Act 1961 and yet to be passed by Parliament, same is subject to change. TATA AIA do not assume any liability due to different interpretation of law. Policyholder are advised to consult their own tax consultant for more clarifications.
- This publication is for general circulation only. This document is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. This document is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
- L&C/Advt/2023/Apr/1266