New income tax rules: Proceeds from life insurance policy to tax-free income — changes from 1st April that you must know

New income tax rule 2023: After ushering in new financial year from 1st April 2023 i.e. from today, a good number of income tax rules are going to change. These income tax rules have been changed on the basis of Union Budget 2023 proposals that have been passed by the parliament in recently through Finance Bill 20223. As per this Finance Bill, proceeds from the income tax policies over the annual premium of ₹5 lakh will now become taxable from 1st April 2023 i.e. from tomorrow. So, it's not that all life insurance policy proceeds will be taxable. Only those life insurance proceeds that have an annual premium of over ₹5 lakh will be taxable from next financial year.

Union Finance Minister Nirmala Sitharaman had proposed to levy tax on proceeds of life insurance policy with annual premium of over ₹5 lakh while presenting the Union Budget 2023 citing, "It is proposed to provide that where aggregate of premium for life insurance policies (other than ULIP) issued on or after 1st April, 2023 is above ₹5 lakh, income from only those policies with aggregate premium up to ₹5 lakh shall be exempt. This will not affect the tax exemption provided to the amount received on the death of person insured. It will also not affect insurance policies issued till 31st March, 2023."

In the Union Budget 2022, Finance Minister Nirmala Sitharaman had imposed income tax on proceeds from ULIP (Unit Linked Insurance Plan) on annual premium over ₹2.5 lakh. So, from 1st April 2023, proceeds from ULIP on annual premium up to ₹2.50 lakh and proceeds from life insurance on annual premium up to ₹5 lakh will be income tax exempted.

Some other income tax rule changes from 1st April

- From tomorrow, new income tax slab will become by-default tax regime for earning individuals. Now, if an earning individual wish to go with the old tax regime, needs to opt for the old tax regime.

- Standard deduction of ₹50,000 has been passed on to both old and new income tax regime.

- Tax free income for salaried individuals has now gone up to ₹7 lakh per annum from 1st April 2023.