life insurance policy, an individual should evaluate the cover on certain factors such as tenure of the policy, premium paying term, maturity amount, insurance coverage, and bonus. From FY 2023-24, one should also check «Maximum Tax Exemption» available on a life insurance policy.
Until March 31, 2023, an endowment life insurance policy or traditional life insurance policy (except ULIP) had the EEE tax rating (Exempt-Exempt-Exempt).
It means the investment, earnings, and maturity of a life insurance policy would be tax neutral. The maturity amount enjoyed exemption under Section 10(10D) of the Income-tax Act, 1961 as long as the premium amount did not exceed 10% of the sum insured amount.
The position changed after the Budget 2023 put a cap on tax exemption of endowment life insurance policies issued on or after April 1, 2023.
Now no exemption is allowed for the life insurance policies issued on or after April 1, 2023 if the premium payable in any year during the policy term exceeds Rs 5 lakh. This rule will apply even if one holds multiple life insurance policies each with an annual premium below Rs 5 lakh and the cumulative premiums paid in any financial year across all such policies exceeds Rs.
5 lakh.
When it comes to buying life insurance and when the policy matures, it's a good idea to be smart about it now to get most of the income tax benefits.
Smart Tips for Buying Life Insurance now
If you plan to pay more than Rs 5 lakh for life insurance premiums, here are some simple tips to remember.
First, avoid getting a single high-premium insurance policy. Instead, choose policies with lower premium amount.
This gives you two advantages. First, if you face financial difficulties, you can cancel one of these smaller
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