Disappointing News for Insurance Buyers in Union Budget 2023
The much-awaited Union Budget 2023 was announced on 1st February 2023 by Finance Minister Nirmala Sitharaman. The new budget mainly focuses on simplifying the Income Tax Return (ITR) process and promoting the new tax regime. Let’s take a closer look at the proposals presented in this year’s budget.
SIMPLIFICATION OF THE ITR PROCESS
The Union Budget 2023 aims to simplify the ITR process. It reduces the number of income tax slabs and increases the exemption limit to 3 lakhs from 2.5 lakhs under the new tax regime. Moreover, the rebate under section 87A has been increased to Rs 7 lakh from Rs 5 lakh under the new tax regime. These changes bring good news for taxpayers as they help ease the tax burden.
WOES FOR THE INSURANCE SECTOR
However, there was a heart-breaking situation for the insurance sector. In the previous 2021 budget, exemptions on proceeds of Unit Linked Insurance Plan (ULIP) with aggregate premium exceeding Rs 2.5 lakhs in a year were removed. This year, tax exemption restrictions are implied on traditional insurance policies as well.
Also Read: Union Budget 2023: Priorities in light of growing global unrest
TAX BENEFITS RESTRICTIONS
The latest Union Budget announced an upper ceiling on the tax benefits against proceeds from traditional life insurance policies. Earlier, individuals could claim tax deductions for the insurance taken to protect themselves and their families. With the latest change, insurance premiums above Rs 5 lakhs will be taxable at a slab rate. However, this restriction does not apply to ULIPs.
This change will make endowment insurance, retirement plans, and whole life insurance policies less attractive to individuals, especially high-net-worth individuals. These proposed changes apply to those insurance policies that will be issued on or after 1st April 2023. So if you have an existing life insurance policy with an aggregate premium exceeding Rs 5 lakhs during the year, you need not worry about it.
Also Read: Budget 2023: Infrastructure stocks you Should Know About
BENEFITS TO SMALL AND GENUINE INSURANCE COVERAGE
As per FM, these amendments in the taxation of insurance receipts provide benefits to small and genuine insurance coverage cases. In the past, high-net-worth individuals escaped from taxes by investing in policies having large premiums. These changes will help curb such practices.