Certain clauses of the IT Act have been amended by the CBDT to align with The Finance Act, 2023
The Central Board of Direct Taxes (CBDT) via a circular issued on August 16 notified new guidelines under clause (10D) of section 10 of the Income-Tax Act, 1961.
It said that clause (100) of section 10 of the IT Act provides for income-tax exemption on any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy subject to certain exclusions.
This has been amended per The Finance Act, 2023, inter-alia, by substituting the existing sixth proviso with the new sixth, seventh, and eighth provisos to, inter-alia, provide that:
(i) with effect from the assessment year 2024-25, the sum received under a life insurance policy, other than a unit-linked insurance policy, issued on or after the first day of April 2023, shall not be exempt under the said clause if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 5,00,000 [sixth proviso];
(ii) if a premium is payable for more than one life insurance policy, other than a unit-linked insurance policy, issued on or after 01.04.2023, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 5,00,000 for any of the previous years during the term of any of those policies [seventh proviso];
Budget 2023: Tax exemption removed in insurance policies with premium over Rs 5 lakh
(iii) the sixth and seventh provisos shall not apply in case of any sum received on the death of a person [eighth proviso]
Further, a new clause (xiii) has been inserted in sub-section (2) of section 56 by the board to provide that if any sum is received under a life insurance policy and not claimed as a deduction in any other provision of the IT Act, it will be taxed under income from other sources.
The circular explained, “… if any sum is received, including the amount allocated by way of bonus, at any time during a previous year, under a life insurance policy (other than the sum) — maybe received under a unit linked insurance policy or being the income referred to in clause (iv) of sub-section 2 — which is not to be excluded from the total income of the previous year in accordance with the provisions of clause (10D) of section 10, the sum so received as exceeds the aggregate of the premium paid, during the term of such life insurance policy, and not claimed as deduction in any other provision of the Act, computed in the manner as may be prescribed shall be chargeable to income-tax under the head “Income from other sources.”
The CBDT has also inserted a sub-clause (xviid) in clause (24) of section 2 to provide that income shall include any sum referred to in clause (xiii) of sub-section (2) of section 56.
One must note here that the Finance Act, 2021 inserted fourth to seventh provisos in clause (10D) of section 10 to provide that the sum received under any unit-linked insurance policy (except any such sum received on the death of a person), issued on or after the 01.02.2021 shall not be exempt under said clause, if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000 (fourth proviso). It was also provided that if the premium is payable for more than one UUPs, issued on or after 01.02.2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years during the term of any of the policies (fifth proviso).
In the circular, the tax body also issued certain guidelines to remove difficulties arising while giving effect to the provisions of the said clause. They are as follows:
(i) “eligible life insurance policy” means any life insurance policy (other than unit-linked insurance policy) issued on or after 0 1.04.2023;
(ii) “consideration” means the sum received (of any nature including bonus) under an eligible life insurance policy.
(iii)”current previous year” means the previous year in which consideration is received and its taxability is being examined.
Notably, whether or not the consideration received during the previous year under an eligible life insurance policy will be exempt under clause (100) of section 10 of the Act will be subject to the satisfaction of other provisions of the said clause.
Source: https://www.moneycontrol.com/news/business/economy/cbdt-issues-fresh-guidelines-for-tax-exemptions-on-life-insurance-policy-11204901.html
© 2018 CA Chandan Agarwal. All rights reserved.