The proposal to tax high value insurance policies will not impact pure term life insurance where money is payable to nominee on death of the subscriber, minister of state for finance Pankaj Chaudhary informed the Rajya Sabha on Tuesday. He further said that it will also not affect the exemption of any money received by the nominee on the death of the subscriber in any insurance product. Further smaller policies which are required for social security are also not impacted.
“Over the years it has been observed that several high-net-worth individuals are misusing the exemption provided under clause (10D) of section 10 of the Income Tax Act by investing in policies having large premium contributions (as it is like an investment policy) and claiming exemption on the sum received under such life insurance policies,” he said in response to an unstarred question on income tax amendment.
Clause (10D) of section 10 of the IT Act provides for income-tax exemption on the sum received under a life insurance policy, including bonus on such policy subject to certain conditions. The Union Budget 2023-24 has proposed to tax income from all non-ULIP products, that is par and non-par where aggregate insurance premium paid in a year exceeds Rs 5 lakh. The Finance Act 2021 had removed a similar tax exemption on unit linked insurance products with annual premium of over Rs 2.5 lakh in a year.