Budget 2025 And Your Life Insurance Needs

Indiafirst Life
• 04 Feb, 2025

In the Union Budget 2025, a series of key proposals were announced, that aimed to shape the economic future of India. From changes in tax reforms to updates on investments in different sectors, several announcements were made that seemed to signify the aspects of growth and simplicity. One of the most exciting updates coming from the recent budget for FY 2025-2026 is the change in tax slab rates for the new regimes.**

What Does the New Budget Bring?**

While some major changes are expected once the new bill is introduced, the budget speech has offered a detailed picture of what is to be expected. There is some relief for taxpayers earning under ₹12 lakhs if they are opting for the new tax regime, with the standard deduction of ₹75,000 being consistent. Here is a look at both the old and the new tax slab rates.

Income Slab (Yearly Salary above 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%

Income Slab (Yearly Salary above 12 Lakh)	Tax Rate (Proposed 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%

As a result of a tax rebate which is proposed to be enhanced from ₹25,000 to ₹60,000, there would be no income tax payable up to the income of ₹12 lakh (unless in case of any income taxable at a special rate, such as capital gains).

This proposal is a significant inclusion in the Income Tax Bill 2025-26, expected to benefit a large segment of salaried individuals.

How to Manage Your Life Insurance Needs?**

Depending on your income, your tax regime choice, and several other factors, you may be able to earn some tax exemptions on your life insurance premiums and benefits.

Under the Income Tax Act 1961 (Act), the life or term insurance premiums paid are eligible for tax deductions under section 80C. Each year, a maximum of 1.5 lakhs can be saved under the old tax regime. These benefits also extend to the premiums paid for policy bought for a spouse or child.

Certain tax exemptions are also applicable to payouts or proceeds from the policy. In calculations, the exemption lets you exclude the respective amount from your total income. This benefit is provided by section 10 (10D) of the Act.

However, it is important to look at life insurance for its inherent purpose rather than solely for tax benefits, which will help you make the best use of your policy in the long run.

Given the old regime income tax slab rates better accommodating the exemptions for your insurance and other financial engagements, it may be a better choice if you are keen on claiming these deductions. However, even with the new tax regime slab rate changes, getting the right insurance would still help you create a secure future.

New Budget and ULIP Taxation**

If you are a ULIP investor, it is important to note the new taxation changes for ULIPs. While there are still no exemptions in the new tax regime for investment, you need to be aware of taxes that may apply on your ULIP earnings. As ULIPs will be a part of your investment plan, understanding these changes becomes even more critical.

Effective April 1, 2026, Unit Linked Insurance Plans (ULIPs) with annual premiums exceeding ₹2.5 lakh will be subject to a 12.5% long-term capital gains (LTCG) tax upon redemption after one year. This change, announced in the 2025 Budget, aims to align ULIP taxation with that of equity oriented mutual funds, ensuring a level playing field.

Previously, gains from such high-premium ULIPs were exempt under Section 10(10D) of the Act, leading many investors to favour them for their tax advantages. The new tax framework addresses ambiguities in ULIP taxation, particularly for policies issued after February 1, 2021, with premiums above the ₹2.5 lakh threshold.

Investors holding these ULIPs for over a year will now incur a 12.5% LTCG tax on profits upon withdrawal under section 112A of the Act. This measure is expected to impact those who previously utilised ULIPs primarily as tax-efficient investment vehicles. An income tax calculator can help you with estimates for which regime to choose based on your income and investments.

** Tax exemptions are as per applicable tax laws from time to time.

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.