Are Guaranteed Income Plans Taxable Post-Budget 2023?

An additional passive income can help you achieve the financial goals that matter most to you. Guaranteed income plans are popular life insurance cum savings plans that offer security alongside income. You can start receiving guaranteed income after a 5-12 years period, or even after the first policy year itself, depending on your plan’s terms and conditions. As the name implies, returns in guaranteed plans are fixed, and there is little to no variability in your payouts. These plans are ideal for people with low-risk appetite since guaranteed income plans are not affected by market fluctuations. Plus, these plans offer tax benefits.

However, it is important to note that some tax benefits have been revised by the Union Budget 2023. India’s economic growth prospects are bright. The country’s GDP is expected to expand between 6% and 7.1% annually from 2024 to 2026. To achieve this successfully, Finance Minister Nirmala Sitharaman announced 7 key priorities or what she termed “Saptrishi” as part of the Union Budget 2023 to guide India towards “Amrit Kaal.” One of these seven priorities is the financial sector, which has seen significant changes.

One key change under Budget 2023 was the withdrawal of the tax-free status of life insurance maturity benefits, if the policy’s annual premiums exceed ₹5 lakhs. This is a critical factor to consider while purchasing life insurance policies, such as guaranteed income plans, in India. Here’s a look.

Tax Rules Proposed in the Union Budget 2023

Previously, the tax exemptions under Section 10(10D) stated that the maturity of a policy would be tax-free, provided the premiums did not exceed 10% of the sum assured value. However, Union Budget 2023 changed this clause, and now any policy with annual premiums of over ₹5 lakhs will not be exempt under Section 10(10D). Policies where annual premium is less than ₹5 lakhs will still have tax-free maturity benefits. Death benefit for all life insurance policies (except Keyman Policies) will continue to remain tax-exempt.

Your survival/maturity benefits will be taxed at the same rate of your income tax slab. Currently, the tax rebate is available up to a value of ₹64,116. Keep in mind that no insurance policy issued on or before March 31, 2023, will be affected by this change.

In other words, under Section 10(10D) of the Income Tax Act, income earned from guaranteed income plans with annual premium of less than ₹5 lakhs will continue to be exempt (subject to satisfaction of conditions specified therein- like annual premium is not more than 10% of the sum assured).

Benefits of Guaranteed Income Plans

Below are the top benefits of guaranteed income plans that make them a smart option.

• They offer risk-free returns.
• You have the flexibility to choose the mode and frequency of payouts.
• You can also choose retirement income, long-term, or short-term insurance. For example, you can pick from either a 10-year annual payout, an 8-year quarterly payout, or a lump sum amount.
• The fund can be your or your family’s second source of income.
• Add riders for an extra layer of protection. For instance, critical illness riders, lifelong disability riders, and accidental death riders are available to keep you financially protected during emergencies and after retirement.

Guaranteed income plan offers financial security. Nothing is more stress-relieving than knowing that your loved ones will be able to maintain their standard of living even in your absence. In India, only 3 out of 100 people have life insurance, as per a 2022 Economic Survey by the Ministry of Finance. Another study found that only 8%-10% of rural households are covered by life insurance schemes. This is because many believe they are too young and healthy to buy insurance while others are simply unaware of the benefits. With a guaranteed income plan, the earlier you start, the more time you have to build your returns from the investment. Plus, the premiums tend to be lower for younger and healthier individuals.

How to Choose a Guaranteed Income Plan?

These plans have a transparent “pay and get” structure. Consider the following factors before picking a plan:

• Keep your life goals in mind before investing. For example, paying for a foreign degree, wedding, buying a home, children’s education, or retirement. Consider the life stage that you are in to invest the right amount for adequate returns.
• Look for a flexible plan. For instance, Edelweiss Tokio Life Insurance allows you to choose either regular instalments or a lump sum payment, as per your preference.
• See whether the plan can be used to get a loan when the surrender value has been reached after 3 years. This is important to stay protected during financial emergencies.
• The policy duration must be flexible for salaried adults, such as 10 to 30 years.
• A grace period of 15 days should be available when paying the premiums monthly.
• The policyholder should start getting the payouts after a short waiting period, once premium payments are over.

Finance Minister Nirmala Sitharaman has said that “no spectacular announcements” are likely in the Union Budget 2024. So, if you still haven’t invested to secure your financial future, consider guaranteed income plans. Check out the options offered by Edelweiss Tokio Life Insurance to find a plan most suited to your financial responsibilities and goals. Get started today to live a financially secure and stress-free life.

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.