RESUME APPLICATION PAY PREMIUM
Fund Performance

Fund Performance

Knowledge Center

Knowledge Center

About Us

About Us

Tools and Calculators

Tools & Calculators

Quick links

Mobile (Download app)
  • Webpages
  • Documents
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment

For NRI Customers

(To Buy a Policy)

(If you're our existing customer)

For Online Policy Purchase

(New and Ongoing Applications)

Branch Locator

For Existing Customers

(Issued Policy)

Fund Performance Check

RESUME APPLICATION PAY PREMIUM

What do you want to do?

Quick links

Mobile (Download app)

Download HDFC Life App

Buy plans, track your policy, make renewal payments & monitor fund performance with HDFC Life App, Download Now!

Apple Logo Go to Google Play Store

Budget 2025 and Your Life Insurance Needs

India's Budget 2025 has unveiled major tax reforms, impacting both individual taxpayers and the insurance sector. Key changes include revised tax slabs under the new regime, increased tax rebates, and significant updates to ULIPs taxation. Understanding these shifts is crucial for effective financial planning, especially concerning life insurance and investment strategies.

CALCULATE PREMIUM TALK TO OUR ADVISOR
Budget 2025 and Your Life Insurance Needs

How Budget 2025 Affects Life Insurance: A Detailed Overview

Budget 2025 and Your Life Insurance Needs
February 27, 2025

Table of Content

 

On February 1, 2025, our Finance Minister Nirmala Sitharaman announced several key proposals to shape India's economic future. These announcements include tax reform updates and sectoral investment. One of the most important announcements is a notable update on the change in tax slab rates for the new tax regimes from the FY 2025-2026 budget. 

In addition, some changes were made with Unit Linked Insurance Plans (ULIPs) which will affect the insurance sector. Here, you will learn about the changes in the tax rate as per the new tax regime and the new taxation applicable to ULIPs.

What Does the New Budget Bring?

While significant changes are anticipated with the introduction of the new bill, the budget speech has delivered a comprehensive overview of what to expect. If you are a taxpayer earning under Rs. 12 lakh, you can choose the new tax regime to get some relief, salaried individuals receive an additional standard deduction of Rs 75,000/- which make income tax-free up to Rs 12.75 Lakh. Follow this table to know the existing new regime of FY2024-2025:

Income Slab (Yearly Salary above Rs. 7 Lakh)

Tax Rate (Existing New Regime FY2024-2025)

Up to 3 lakhs

Nil

3-7 lakhs

5%

7-10 lakhs

10%

10-12 lakhs

15%

12-15 lakhs

20%

Above 15 lakhs

30%

Here is a table to help you understand the new income tax slab for income above Rs. 12 lakh under the tax rate announced on 1st February 2025 The Finance Bill,2025 for FY2025-2026 (AY 2026-27):

Income Slab (Yearly Salary above Rs. 12 Lakh)

Tax Rate (New Regime FY2025-2026)

Up to 4 lakhs

Nil

4-8 lakhs

5%

8-12 lakhs

10%

12-16 lakhs

15%

16-20 lakhs

20%

20-24 lakhs

25%

Above 24 lakhs

30%

With the proposed increase in the tax rebate from Rs. 25,000 to Rs. 60,000, no income tax will be payable on earnings up to Rs. 12 lakh. However, there is an exception if your income is taxed at a special rate, such as capital gains.

How to Manage Your Life Insurance Needs?

Your ability to claim tax exemptions on life insurance premiums and benefits depends on factors such as your income, tax regime choice, and other financial considerations.

Under the Income Tax Act of 1961, premiums paid for savings or term insurance qualifies for tax deductions under Section 80C. Under the old tax regime, you can save up to Rs. 1.5 lakh per annum through this benefit, which also applies to policies purchased for your spouse or child.

Moreover, certain payouts or proceeds from life insurance policies are eligible for tax exemptions. Section 10(10D) of the Income Tax Act allows you to exclude these amounts from your total taxable income and provides an additional relief upon satisfaction of certain conditions

Since the old tax regime offers more exemptions for insurance and other financial commitments, it may be the better option if you wish to maximise deductions. Nevertheless, even with the revised new tax regime, having the right insurance remains essential for building a secure financial future.

New Budget and Taxation Changes ULIPS

If you invest in a Unit Linked Insurance Plan (ULIP), it is essential to understand the recent taxation changes. While the new tax regime does not offer exemptions for investments, you should be aware of the potential tax implications on your ULIP earnings.

  • Taxation on High-Premium ULIPs

    • Beginning February 1, 2021, ULIPs with annual premiums over Rs. 2.5 lakh incurred a 12.5% long-term capital gains (LTCG) tax when redeemed after one year. Changes from the Previous Tax Framework

    Previously, proceeds from ULIP policies of premium exceeding Rs 2.5 lacs were only taxed under “Capital Gains”. Hence, proceeds from ULIPs of premium less than Rs 2.5 lacs and premium exceeding 10% of death sum assured were not taxed under “Capital Gains” but were taxed under “Income from Other Sources”.

    It has been proposed in Finance Bill, 2025, that any ULIP policy which does not qualify for Section 10(10D) exemption for any reason will be taxed under “Capital Gains.” This change offers substantial relief to lower premium ULIP policyholders by reducing tax burden on their policies. 

  • Tax Implications on ULIP Withdrawals

    • Under the proposed Budget 2025, investors holding ULIPs of less than Rs 2.5 lakhs premium for more than a year will now face a 12.5% tax on gains  upon withdrawal irrespective of the asset allocation, under the head "Income from Capital Gains”, as per Section 112A of the Act. An exemption of LTCG upto Rs 1.25 lac shall also be available annually. This change is expected to impact those who primarily used ULIPs as tax-efficient investment tools.

    To determine the most suitable tax regime based on your income and investments, consider using an income tax calculator for accurate estimates.

Final Words

In conclusion, Budget 2025 introduces significant changes to tax slabs and the taxation of ULIPs impacting how you integrate life insurance into your financial planning. Ultimately, life insurance remains essential for long-term financial security, regardless of the chosen tax regime.

Reference Links: 

https://economictimes.indiatimes.com/wealth/tax/ulip-tax-updated-itr-nps-vatsalya-and-other-budget-2025-personal-finance-changes-that-can-impact-you/articleshow/118052844.cms?from=mdr 

https://cleartax.in/s/unit-linked-insurance-plan-taxation-rules

https://www.indiabudget.gov.in

/https://www.india.gov.in/spotlight/union-budget-2025-2026

Talk to an Advisor right away

Not sure which insurance to buy?

Talk to an
Advisor right away

Talk to an Advisor right away

We help you to choose best insurance plan based on your needs

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

LinkedIn profile
Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

LinkedIn profile
Reviewed By Reviewed By:

Here's all you should know about life insurance.

We help you to make informed insurance decisions for a lifetime.

How Budget 2025 Affects Life Insurance: A Detailed Overview

How Budget 2025 Affects Life Insurance: A Detailed Overview

Explore the key changes from Indias Budget 2025, including new tax slabs, ULIP Taxation updates, and how these impact your Life Insurance and Financial Planning.

80C Deduction – Understand income deduction under 80C

5 Investment Proof Submission Documents for Income Tax

Understanding TDS on FD Interest Income

Learn about TDS on FD interest income: Understand the calculation of income tax on fixed deposits, payment timelines, and TDS implications for senior citizens at HDFC Life.

Understanding TDS on FD Interest Income
HDFC life
HDFC life

HDFC Life

Reviewed by Life Insurance Experts

HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER

We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

Popular Search

Popular Searches

Disclaimer

NOTE: Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

@Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

@@Provided all due premiums have been paid and the policy is in force.

ARN- ED/02/25/21469

down-arrow