Insurers with higher premiums to be taxable from April 2022
The insurance policies excluding Unit Linked Insurance Plans or Ulip with cumulative annual premiums exceeding 5 lakh will be taxable from April 1, 2023, as per the budget proposals. The surge in demand for non-Ulip policies has resulted in a surge in demand for guaranteed plans.
This is the last month that people are using this opportunity to deploy a portion of their savings towards tax-saving vehicles, and this is for non-par and par policies with premiums more than 5 lakh. We are seeing that trend, said Prashant Tripathy, Managing Director and CEO, Max Life Insurance Company.
Vivek Jain, Head of Investments Business, Policybazaar.com concurred: At Policybazaar, we are seeing increased traction for guaranteed return plans. To avoid being taxed under Section 10 10 D, it is recommended to purchase a guaranteed return plan and lock in the tax-free maturity amount for the future. The ability to lock in high interest rates for the next 20, 25, and 30 years has made guaranteed plans popular, especially when one expects interest rates to fall. Jain said if you invest for 5 years in India, the maturity amount will be Rs 1.03 crore. This entire maturity amount will be tax exempted under Section 10 10 D, while if you invest the same amount after March 31, this maturity amount will only be taxable and you will only make Rs 86 lakh assuming you fall in the highest tax slab. Guaranteed plans offer a guarantee of capital protection where policyholders can choose to receive the payout in the form of a lump sum or regular income for a certain number of years. The return from these policies is around 6 -- 6.5 per cent, which is fixed at the time of buying the policy and remains the same throughout the policy's tenure. HDFC Life's Sanchay Plus is one of the popular plans in the market, which offers guaranteed payouts for different tenures.
Retirement plans with fixed amount pay similar to annuity plans, guaranteed plans have become popular as long term retirement plans. Under these policies, you pay a premium for a fixed-term followed by a deferment period of 1 -- 2 years after which you start receiving regular payouts. It is important to note that while pension amount is taxable under annuity plans, guaranteed plans are currently treated as an insurance policy under the Income Tax Act as it offers insurance cover and therefore the payout becomes tax-free.
In Budget 2021 a similar type of taxation was introduced, where maturity proceeds of unit-linked insurance policies became taxable if premiums exceeded Rs 2.5 lakh.