How Section 10(10D) Of IT Act Will Impact Non-ULIP Insurance Policies After March 31?

Tax incentives have always acted as a catalyst in ensuring wider insurance adoption. Though well-balanced and growth-oriented, the most awaited financial event of the year - Union Budget - turned out to be a wistful affair for those expecting a tax rebate over and above the standard limit on insurance policies. The proposal, instead, stated that insurance policies with over Rs 5 lakh annual premium purchased after 01 April 2023 would no longer be eligible for tax exemption under Section 10 (10D).

The policy that could escape the axe of this rule is - ULIPs or unit-linked insurance plans. ULIPs will continue to follow the same rule of LTCG (long-term capital gains) tax – if the yearly premium of a ULIP plan purchased after 01 February 2021 exceeds Rs 2.5 lakh, then they will be subject to taxation, just like every other equity-oriented investment.

While ULIPs reward investors under favourable market conditions, it is also true that they bear a risk under volatile markets. So, how should one go about financial planning in light of this recent announcement?

Now that the financial year comes to a close, here’s rounding up what this development means and how it impacts an average investor.