Strategy to save taxes on returns from traditional plans issued post 31 March 2023 if the premiums from one or more plans exceeds Rs 5 lacs
The Union Budget 2023 had several changes both in direct taxes and personal taxes. A big change was introduced for the insurance sector where the returns will be taxable, if the premium from one or more policies exceeds Rs. 5 lacs. This is however not included for the ulip plans.
What is this Life Insurance tax-exemption change?
The Budget 2023 has proposed to put an upper ceiling on the tax-benefits against the proceeds from traditional life insurance plans. This is applicable on high value insurance plans( non-ULIPs) having Premium exceeds of more than Rs. 5 lacs . Though the exemption benefit is taken away from the proceeds on the policy’s maturity, the benefit is not taken from the claim proceeds of the death benefit.
For instance, if you are looking to buy a life insurance than you should know that Returns from traditional plans issued on or after 01-04-2023 will be taxable if the premium from one or more policies exceed Rs. 5 Lacs.
How to save taxes on returns from traditional plans(issued post 01-04-2023),if the premiums from one or more policies exceeds Rs. 5 lacs?
Now here is the main factor that still make all High ticket life insurance policies attractive with tax-exemption to it.
If you buy this plan before 31st march, 2023 then whatever will be the aggregate premium, the tax-exemption will be applicable. A major affect is seen on several Guaranteed Income plans, which usually give guaranteed income with tax-benefits for lifetime.
What are Guaranteed Income Plans?
In an investment plan, the word guarantee can provide assurance to many people. A guaranteed income plan is a non-participating monthly income scheme. For the duration of the plan, you pay an annual premium. Depending on your age and financial situation, you can decide how long the loan will last.
Upon maturity, you will receive a guaranteed payout similar to a regular salary for a certain number of years. The number of years is determined by the insurance cover selected, the premium paid, and the sum assured at maturity.
The Benefits of Guaranteed Income Plans
- Regular income: Guaranteed Income Plans provide a regular income to the policyholder, which can help them meet their daily expenses.
- Financial security: These plans provide financial security to the policyholder and their dependents in case of an emergency or unexpected expenses.
- Fixed returns: Guaranteed Income Plans offer fixed returns on the investment, which means the policyholder knows how much they will earn at the end of the policy term.
- Tax benefits: The premium paid towards these plans is eligible for tax deductions under Section 80C of the Income Tax Act,1961
- Flexibility: These plans offer flexibility in terms of the policy term, premium payment frequency, and payout options.
- No market risks: Unlike other investment options, Guaranteed Income Plans do not carry any market risks, and the policyholder is guaranteed to receive the promised returns.
- Capital protection: Guaranteed Income Plans offer capital protection, which means the policyholder's investment is protected, and they are assured of getting their money back at the end of the policy term.
However the above tax exemption does not applies to ULIP plans and these can be a good option as well:
ULIPs, or Unit Linked Insurance Plans, are investment products offered by insurance companies in India that provide a combination of insurance coverage and investment opportunities. Here are some benefits of ULIP plans in India:
- Dual benefit: ULIPs provide both insurance coverage and investment opportunities, making them a versatile financial product. A part of the premium goes towards providing life insurance coverage, while the rest is invested in a range of funds that can potentially yield higher returns.
- Flexibility: ULIPs offer a high degree of flexibility in terms of investment options, premium payment, and switching between different funds. Policyholders can choose from various funds based on their investment goals and risk appetite, and can also switch between funds to take advantage of changing market conditions.
- Tax benefits: ULIPs offer tax benefits under Section 80C & Section 10(10D) of the Income Tax Act, 1961. The Policyholders can claim a deduction of up to Rs. 1.5 lacs on the premium paid towards ULIPs in a financial year, and the maturity proceeds are also tax-free.
- Long-term investment: ULIPs are designed as long-term investment products, with a minimum lock-in period of 5 years. This encourages policyholders to stay invested for the long term, which can help them achieve their investment goals and create wealth over time.
- Transparency: ULIPs offer transparency in terms of charges and fees, making it easier for policyholders to understand the costs associated with the product. Insurance companies are required to disclose the charges and fees upfront, making it easier for policyholders to make informed investment decisions.
All investment and insurance products need a complete evaluation before purchase and the type of plan required can vary from person to person. To know what can be the best strategies for you on saving tax as well wealth protection, log onto www.bajajcapitalinsurance.com
