Union Budget 2024: Key Takeaways for Life Insurance Policyholders

The Union Budget is a yearly session held by the Ministry of Finance that sets the pace for the entire financial year to come. During the budget, the Government of India reveals their plans for various sectors of the Indian economy, announces various tax amendments, and discusses the overall state of the countries economy. This year, the Union Budget for Financial Year 24-25 was held on July 23rd. Click on this link to check all the key highlights from this year’s budget session. 

When it comes to life insurance, policyholders can now expect even more returns from their plans. Overall, Union Budget 2024 was a net positive for the life insurance sector. While there are no major changes, new tax deductions will come into play while calculating your policy’s maturity/survival benefits. Here are some key takeaways from Union Budget 2024 that will benefit life insurance policyholders.

Changes to Life Insurance Sector Per Budget 2024

• Tax Deduction at Source (TDS):

Previously, the TDS for insurance returns greater than ₹1 lakh was 5%. However, the TDS rate has now been reduced to just 2%. This means that policyholders will get more in-hand income from their life insurance plans. This TDS change will come into play from October 1st, 2024. Note that TDS will not be applicable if your policy is eligible for tax exemption under Section 10(10D).

Lower TDS rates will make endowment insurance plans an attractive investment option for those looking for guaranteed returns. Moreover, this amendment will also improve the returns offered by participating insurance plans that offer cash bonuses. Lower TDS rates will apply to both your survival benefits (payouts during policy term) as well as your maturity benefit (payout post the policy term).

• Tax Laws Regarding Endowment Plans:

Maturity returns from endowments plans will be tax free as long as your annual premium does not exceed ₹5 lakhs. However, if your policy’s annual premium exceeds ₹5 lakhs, then you returns will be taxable (along with 2% TDS) as per prevailing tax laws. This amendment will be applicable to all insurance policies issued after April 1st, 2023.

• How are Annuity Plans Affected:

Premiums paid towards annuity plans will still be applicable for tax benefits under Section 80C and Section 80CCC of the Income Tax Act. Annuity payouts will now be taxed according to the new tax slabs announced during Budget 2024.

ULIPs and Term Insurance Plans Remain the Same

Provisions relating to Unit Linked Insurance Plans (ULIPs) remain unchanged. When it comes to ULIPs, your returns will be tax free as long as your annual premium (for ULIPs) is less than ₹2.5 lakhs. If you exceed this limit, you returns will be taxed as per the prevailing laws regarding capital gains.

Similarly, no changes were made to term plans. Your term insurance premiums will be tax deductible as per Section 80C. Moreover, your life insurance death benefit will remain tax free as per Section 10(10D). Tax exemption for death benefit applies to all life insurance plans except keyman insurance.

Conclusion

The biggest takeaway from the Union Budget 2024 is the amendment to TDS rates for life insurance. If you want a tax friendly investment, then endowment insurance plans are one of the best options available in the market. If you are still looking for a plan to invest in, consider checking out Edelweiss Life- Flexi Savings Plan. This plan offers guaranteed returns alongside cash bonus payouts, and your returns will also benefit from the new TDS rate announced in Budget 2024!

 

Aastha Mestry - Portfolio Manager 

An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.