CBDT has notified new I-T Rule 11UACA on “Computation of income chargeable to tax under section 56(2)(xiii), vide Notification 61/2023 dated 16/08/2023 (Income-tax Amendment Sixteenth Amendment Rules, 2023).
The new I-T rule 11UACA prescribes the manner of computation of income liable for taxation in respect of the receipts from a life insurance policy, which is not exempt u/s 10(10D) due to applicability of sixth and seventh proviso, in line with amendments made by the Finance Act, 2023.
CBDT Income Tax Notification 61/2023 dated 16/08/2023: New I-T Rule 11UACA inserted (Taxable Receipts from Life Insurance Policies)
First-time Receipts from Insurance Policies
When anyone receives a sum from a life insurance policy, including bonus, for the first time in any previous year, the taxable income is computed following a formula (A-B). Here, A stands for the sum or the aggregate of the sums received under the life insurance policies during the first year. B represents the cumulative premium paid during the life insurance policy’s term till the date of receipt that hasn’t been claimed as a deduction under any other provision.
Subsequent Receipts from Insurance Policies
On occasions where the sum from the life insurance policy is received for the second or subsequent occasion in another previous year, the income chargeable to tax gets computed via another formula (C-D). Here ‘C’ equates to the sum or aggregate of sum received under the life insurance policy for that subsequent year. In contrast, ‘D’ pertains to the aggregate of the premium paid during the insurance policy’s duration up till the receipt date. However, D does not encompass premiums previously claimed as deductions or those already included in amounts ‘B’ or ‘D’ from any of the former years.
Sums Received Under Life Insurance Policy Explained
The new rule clarifies that the term “sum received under a life insurance policy” encompasses any amount received under such policy not exempt from a person’s total income as per section 10(10D). The exceptions are sums received under a unit linked insurance policy (ULIP), or keyman insurance policy referred to in section 56(2)(iv).
Conclusion
This amendment addresses tax obligations on sums received under life insurance policies. It unequivocally spells out the tax implications and efficiently manages potential tax liabilities as the restrictions have been placed by Finance Act 2023 on exemption in respect of life insurance policies, barring ULIPs, taken on or after April 1, 2023, with annual aggregate premium of above Rs 5 lakh. As a consequence, tax exemption shall be applicable only in respect of receipts from policies with aggregate premiums not surpassing Rs 5 lakh per annum.
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CBDT Clarifications on Exemption u/s 10(10D): Receipts from Life Insurance Policies