Union Budget 2023: How the Proposed Tax on Life Insurance Policies Will Impact Investors
The Union Budget 2023 has proposed a new tax rule that will affect the maturity proceeds of all life insurance policies issued after April 1, 2023, with an annual premium of more than ₹5 lakh. Under the new rule, the maturity proceeds will now be taxable based on the applicable tax slab. This change has taken high-net-worth individuals and insurance companies by surprise.
However, guaranteed income products remain one of the best investment options as they offer assured returns and tax benefits. These investment products are a combination of investment and insurance coverage. Investors in guaranteed income products can continue to avail of the tax deduction benefit of up to ₹1.5 lakh under Section 80C of the Income Tax Act 1961. This benefit is available to investors who have opted for the old tax regime. The new budget proposal has not affected this tax deduction benefit, allowing all investors of such a product to continue enjoying this benefit on guaranteed income products.
The new tax rule proposed in the Union Budget will take effect from April 1, 2023. Therefore, investors who wish to invest more than ₹5 lakh in such products as guaranteed income products can benefit from full tax exemption on maturity proceeds by investing before March 31, 2023.
Under various scenarios, the impact of the new tax rule is as follows:
If your aggregate annual premium on income-based insurance policies is less than ₹5 lakh, there will be no impact, and you will continue to receive all tax benefits, including tax exemption on maturity proceeds.
If your aggregate annual premium on income-based insurance policies exceeds ₹5 lakh and your annual net taxable income falls under the 10%, 20%, or 30% tax slab, the maturity proceeds will be taxable at 10%, 20%, or 30%, respectively.
Those who are affected can invest before March 31, 2023, and obtain full tax exemption on maturity proceeds.
Investing in guaranteed income products such as guaranteed return plans can help investors fulfill their financial goals. These products offer guaranteed returns, which means that investors can expect a fixed rate of return on their investment, regardless of market fluctuations. This makes them an attractive investment option for investors who are looking for stable returns on their investment and want to minimize risk.
Guaranteed return plans can help investors achieve a wide range of financial goals, including retirement planning, wealth creation, and protection against unforeseen events. For instance, investors who are looking to save for their retirement can invest in guaranteed return plans to build a corpus over time. These plans offer attractive interest rates that can help investors build a retirement corpus that will help them live comfortably.
In conclusion, the new tax rule proposed in the Union Budget 2023 may impact high-net-worth individuals, but the impact is limited. Guaranteed income products such as guaranteed return plans remain an attractive investment option for people looking for safe investment options as they provide the benefit of tax deductions and assured returns. It is, therefore, advisable to invest in guaranteed income products before March 31, 2023, to obtain full tax exemption on maturity proceeds.
