MUMBAI: Insurance sector was disappointed with budget as Finance Minister Nirmala Sitharaman proposed to remove tax exemption for insurance policies with annual premium of over Rs 5 lakh. The frustration was visible in the stock market as shares of insurance company tanked by up to 10 per cent on Wednesday.
As per the new proposal if the annual premium paid by the customer for insurance policy is more than Rs 5 lakh then the income from the policy on maturity will be taxed. Currently, the proceeds from the maturity of such policies is exempt from tax. The new proposal will not impact taxation of unit-linked insurance plans.
“It is proposed to provide that where aggregate of premium for life insurance policies (other than Unit Linked Insurance Plan) issued on or after 1 April, 2023 is above Rs 5 lakh, income from only those policies with aggregate premium up to Rs 5 lakh shall be exempt,” said the Finance Minister while presenting the budget.
As per the budget proposal, this will not affect the tax exemption provided to the amount received on the death of a person insured. Insurance policies issued till March 31, this year will not be affected by the new proposal.
Reacting to the new proposal, shares of life insurance companies plunged in the stock market. Shares of Life Insurance Corporation of India fell over 8 per cent to close at Rs 599 apiece on the Bombay Stock Exchange on Wednesday while ICICI Prudential Life Insurance Company’s share plunged 11 per cent to Rs 403 apiece. Following the similar trend, shares of SBI Life Insurance Company’s shares declined 9 per cent to Rs 1,106 apiece while shares of HDFC Life Insurance Company were down 11 per cent to close at Rs 515.5 apiece on the BSE.
“The income from traditional insurances where the premium is over Rs 5 lakh will not be tax exempt. While, this will dampen the interest of individuals to buy high value traditional insurances, it will increase the focus on term plans and pure risk covers which is good. A concern is that it should not result in a significant shift towards purely investment oriented unit link insurances,” says Kapil Mehta Co-founder, SecureNow Insurance Broker.
Experts say though this may discourage ones to buy high value traditional insurances, it will increase the focus on term plans and pure risk covers, which is good.
Tax on insurance policies
Budget proposes to remove tax exemption for insurance policies with annual premium of over K5 lakh
Currently, the proceeds from the maturity of such policies is exempt from tax
New proposal will not impact taxation of unit-linked insurance plans
Insurance company shares fall up to 10%