Budget 2023 | Exemptions on high-value life insurance proceeds pruned

the proposal means that only income from life insurance policies with an aggregate premium up to ₹5 lakh will be exempt from taxation.

Updated - February 02, 2023 12:13 am IST

Published - February 01, 2023 04:07 pm IST

Image for representational purpose only.

Image for representational purpose only. | Photo Credit: The Hindu

The Union Budget 2023-24 has proposed to limit the income tax exemption on the proceeds of high value life insurance policies.

Mooted as part of an emphasis on better targeting of tax concessions and exemptions, the proposal means that only income from life insurance policies with an aggregate premium up to ₹5 lakh will be exempt from taxation.

Also Read | Budget 2023 | How is money allocated and where does it come from?

“It is proposed to provide that where aggregate of premium for life insurance policies [other than ULIP] issued on or after April 1, 2023 is above ₹5 lakh, income from only those policies with aggregate premium up to ₹5 lakh shall be exempt,” the Budget documents said. The proposal will not affect the tax exemption provided to the amount received on the death of the insured person, nor will it affect insurance policies issued till March 31, 2023.

This income will be taxable under the head “income from other sources”. Deduction will be allowed for the premium paid, if such premium has not been claimed as deduction earlier. There will not be any change in taxation for polices issued before April 1, 2023.Preventing misuse by the rich.

The proposal follows a measure initiated in the Finance Act, 2021 pertaining to the proceeds of ULIP policies, where the premium paid, for any year, exceeded ₹2.5 lakh. Both the previous and present moves are aimed at curbing misuse of the exemption by high net worth individuals, who invest in policies having large premium contributions and then claim exemption on the sum received under such policies.

The latest proposal, coupled with the income tax benefits that were announced in the Budget for those under the new tax regime, seems to have affected investor sentiments in life insurance stocks, with the shares of LIC, HDFC and SBILife taking a hit on Wednesday.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.