Any sum received Under Life Insurance Policies -Section 56(2)(xiii) Read with Rule 11UACA - Income Tax - Ready Reckoner - Income Tax

Any sum received Under Life Insurance Policy - Section 56(2)(xiii) [ New clause added by Finance Act, 2023 w.e.f. 01st April, 2024 ] where any sum is received, including the amount allocated by way of bonus, at any time during a previous year, under a life insurance policy, other than the sum, (a) received under a unit linked insurance policy; (b) being the income referred to Section 56(2)(iv) , which is not to be excluded from the total income of the previous year in accordance with the provisions of section 10(10D) , the sum so received as exceeds the aggregate of the premium paid, during the term of such life insurance policy, and not claimed as deduction under any other provision of this Act, computed in such manner as may be prescribed. As per Circular No. 15/2023 dated 16, August, 2023, Clause (10D) of section 10 of the Income-tax Act, 1961 (the Act) provides for income-tax exemption on any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy subject to certain exclusions. I. amended Clause (10D) of section 10 of the Act by substituting the existing sixth proviso with the new sixth, seventh and eighth provisos to, inter-alia, provide that: (i) w.e.f. assessment year 2024-25, the sum received under a life insurance policy, other than a unit linked insurance policy, issued on or after the 1st day of April, 2023, shall not be exempt under the said clause if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 5,00,000 [sixth proviso]; (ii) if premium is payable for more than one life insurance policy , other than a unit linked insurance policy, issued on or after 01.04.2023, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 5,00,000 for any of the previous years during the term of any of those policies [seventh proviso]; (iii) the sixth and seventh provisos shall not apply in case of any sum received on the death of a person [eighth proviso] II. inserted a sub-clause (xviid) in clause (24) of section 2 to provide that income shall include any sum referred to in clause (xiii) of section 56(2) . Example:- The assessee has the following life insurance policies and unit linked insurance policies (ULIPs) all of which satisfy all the conditions laid down in Clause (10D) of section 10 of the Act (other than the conditions provided under the fourth, fifth, sixth and seventh provisos of the said clause, applicability whereof is being explained in the example). The assessee did not receive any consideration under any other eligible life insurance policies or unit liked insurance policies in earlier previous years preceding the previous year 2033-34 other than under unit liked insurance policy X and under life insurance policy ' A . Life Insurance Policy A B C Unit Linked Insurance Policy X Y Date of issue 01.04.2021 01.04.2023 01.04.2023 01.04.2023 01.04.2024 Annual premium (Rs) 1,00,000 1,00,000 1,00,000 1,50,000 3,00,000 Sum assured (Rs) 10,00,000 10,00,000 10,00,000 15,00,000 30,00,000 Consideration received on 01.07.2033 6,00,000 6,00,000 Consideration received on maturity as on 01.11.2034 12,00,000 18,00,000 34,00,000 Taxability as per fifth and seventh proviso to Clause (10D) of section 10 of the Act: As per the fifth proviso, the surrender value of unit linked insurance policy ''X and consideration received under unit linked insurance policy Y on maturity will be exempt under Clause (10D) of section 10 of the Act since the annual premium does not exceed Rs 2,50,000 during the term of these policies. Further, the consideration received under the life insurance policy A during the previous year 2033-34 shall be exempt under Clause (10D) of section 10 of the Act and will become old eligible life insurance policy for which exemption has been claimed. Then, for the previous year 2034-35, the consideration for life insurance policy C only shall be exempt under Clause (10D) of section 10 of the Act as the sum of premium of life insurance policies A and C does not exceed Rs 5,00,000 in any of the previous years during the term of these policies. The consideration for life insurance policy B is not exempt since sum of premium of life insurance policies A , B and C exceeds Rs 5,00,000 during the term of these policies. Life insurance policy C is preferred over life insurance policy B being more beneficial to the assessee. However, if the consideration from life insurance policy A was not claimed as exempt in previous year 2033-34, then the consideration from both the life insurance policies B and C shall be exempt under Clause (10D) of section 10 of the Act. Clarification on GST Component it is also clarified that the premium payable/ aggregate premium payable for a life insurance policy/ policies, other than a unit linked insurance policy, issued on or after the 1st day of April, 2023, for any previous year, shall be exclusive of the amount of the Goods and Service Tax payable on such premium . This can be explained by the following example: Life Insurance Policy A Date of issue 01.04.2023 Annual premium (Rs) 5,00,000 GST @4.5% of premium) 22,500 Total Premium Payable 5.22,500 Sum assured (Rs) 60,00,000 Consideration received as on 01.11.2033 on maturity 70,00,000 Clarity on premium of Term life insurance policy It is further clarified that the provision of the sixth and seventh proviso of Clause (10D) of section 10 shall not be applicable in case of a term life insurance policy i.e. where sum under a life insurance policy is only paid to the nominee in case of the death of the person insured during the term of the policy and no amount is paid to anyone if the insured person survives the policy tenure. Hence, any sum received under a term insurance policy shall continue to be exempt under Clause (10D) of section 10 of the Act, irrespective of the amount of the premium payable in respect of such policy. Further the premium paid for such policies shall not be counted for checking Rs 5,00,000 limit for the purposes of sixth and seventh proviso. Computation of income chargeable to tax under clause (xiii) of section 56(2) [ Rule 11UACA of Income Tax Rules ] where any person receives at any time during any previous year any sum under a life insurance policy, then, the income chargeable to tax under the section 56(2)(xiii) during the previous year in which such sum is received shall be computed in the following manner, namely: (i) where the sum is received for the first time under the life insurance policy during the previous year (hereinafter referred to as first previous year), the income chargeable to tax in the first previous year shall be computed in accordance with the formula, A-B where, - A = the sum or aggregate of sum received under the life insurance policy during the first previous year; and B = the aggregate of the premium paid during the term of the life insurance policy till the date of receipt of the sum in the first previous year that has not been claimed as deduction under any other provision of the Act; (ii) where the sum is received under the life insurance policy during the previous year subsequent to the first previous year (hereinafter referred to as subsequent previous year), the income chargeable to tax in the subsequent previous year shall be computed in accordance to the formula, C-D where, - C = the sum or aggregate of sum received under the life insurance policy during the subsequent previous year; and D = the aggregate of the premium paid during the term of the life insurance policy till the date of receipt of the sum in the subsequent previous year not being premium which (a) has been claimed as deduction under any other provision of the Act; or (b) is included in amount B or amount D of this rule in any of the previous year or years Explanation . For the removal of doubts, it is clarified that the sum received under a life insurance policy would mean any amount, by whatever name called, received under such policy which is not to be excluded from the total income of the previous year in accordance with the provisions of clause (10D) of section 10 , other than the sum (a) received under a unit linked insurance policy; or (b) being the income referred to in clause (iv) of sub-section (2) of section 56 . .