Budget 2023 proposed a change in Tax-exemption in some of the Life Insurance Policies- Is it Beneficial or Detrimental?
The unveiling of the Union Budget 2023 by Finance Minister Nirmala Sitharaman on February 1, 2023, was an eagerly anticipated occasion for the entire country. The budget illustrated the vision for future times through the Amrit Kaal theme that is looking to bring in the best of times.
In addition to a number of other decisions, a significant statement regarding life insurance plans was made, stating that returns from traditional plans issued on or after April 1, 2023( other than ULIPs), will be taxable if the premiums from one or more policies surpass Rs.5,00,000. However, the death benefit continues to be tax-free.
Following this announcement, there is widespread scepticism about choosing Assured Income Plans, and the general public is undecided about purchasing these plans. The ruling clearly says that policies issued after March 31,2023 and exceeding Rs.5,00,000 premium., would fall into this category. Hence, if one buys a policy before March 31, 2023, they can reap the benefits of Guaranteed Income Plans.
If one is looking for Lifetime Guaranteed Returns, then Guaranteed Income Plans are a great option, and the right time to invest in these would be before April 1 2023, to avail tax efficiency if the premium exceeds Rs. 5,00,000.
But why is Life Insurance important?
- Estate planning: Life insurance can be used as part of an estate planning strategy to enable a situation that your assets are distributed according to your desires.
- Peace of mind: Knowing that your family will be provided for in the event of your demise can give you Peace of mind and reduce stress.
- Tax benefits: The death benefit paid out to beneficiaries is generally not taxable, making life insurance a tax-efficient way to provide financial protection.
- Life insurance can provide financial protection to your dear ones in the event of your untimely death. Here are few of the benefits of life insurance:
- Financial protection: Life insurance can provide a lump-sum payment to your beneficiaries, which can be used to cover expenses such as funeral charges, outstanding debts, if any, & living expenses.
- Loan options: Some life insurance policies may give the option to borrow against the cash value of the policy, providing you with additional financial flexibility.
- Business benefits: Life insurance can be used to fund buy-sell agreements or key person insurance policies, providing financial protection to business partners or key employees.
- Affordable premiums: Life insurance premiums can be relatively affordable, especially if you purchase coverage at a young age.
Overall, life insurance can provide a range of benefits that can help to protect your loved ones and provide 'Peace of mind'.
The Change proposed in the Budget is Beneficial or Detrimental?
It is hard to say whether this change is positive or negative. However, the only thing it has for sure for the buyer is to buy the concerned policies that are in this category within the given frame of mind to enjoy maximum tax benefit. Guaranteed Income plans fall under this category and are an amazing product that provides the dual benefit of life cover as well as regular income.
Top 6 benefits of Guaranteed Income Plans are:
Guaranteed income plans in India are insurance policies that offer a fixed income stream for a specified period of time. Here are some benefits of guaranteed income plans:
- Guaranteed income: As the name suggests, these plans offer a guaranteed income stream for a specified period of time. This can provide a sense of financial security and stability for the policyholder.
- Tax benefits: The premium paid towards guaranteed income plans is eligible for tax deduction under Section 80C of the Income Tax Act,1961. Additionally, the income received from these plans is exempt from tax under Section 10(10D) of the Income Tax Act, 1961.
- Long-term savings: Guaranteed income plans typically have a longer tenure. This makes them a good option for long-term savings and retirement planning.
- Flexibility: Guaranteed Income Plans offer flexibility in terms of the frequency of payouts (monthly, quarterly, half-yearly, or yearly) and the payout period.
- Protection against inflation: Some Guaranteed Income Plans offer inflation protection by increasing the payout amount annually to keep up with inflation.
- Death benefit: In the event of the policyholder's death during the payout period, the nominee receives the remaining payouts as a lump sum, providing financial protection to the family.
So it would be wise to say that if one is looking to buy a life insurance policy that is high in value and might fall under the taxable category after March 31 2023, then one should buy it well within the timeline.
