A HEAVY BLOW

The proposed changes announced in the Budget are likely to hurt the insurance sector

The Indian insurance industry had anticipated several concessions from Finance Minister (FM) in the Union Budget this year. However, the announcement made in the budget speech surprised the insurance industry. The maturity proceeds of life insurance policies with premiums exceeding 5 lakh will be taxed beginning with the fiscal year 2023-24. Policyholders can currently claim tax breaks under Section 80C for investing in insurance products. Final proceeds are also tax-free under section 10, (D).

The Finance Ministry’s decision announced in the Budget may have an impact on high-priced insurance policies that are commonly purchased by non-resident Indians (NRIs) and high net worth individuals (HNIs). Having said that, a number of policyholders continue to pay insurance premiums of more than

5 lakh per year. In this article, we attempt to explain what the Union Budget announcement is, how it will affect policyholders, and what the future holds for the life insurance industry.

WHAT HAS CHANGED IN THE BUDGET?

Insurance companies in India were requesting a separate tax deduction for life insurance policies and a higher limit for health premiums from the government ahead of Union Budget 2023-24. But in her budget speech, Finance Minister Nirmala Sitharaman said, “It is proposed to provide that where aggregate of premium for life insurance policies (other than ULIP) issued on or after 1st Apr ’23 is above 5 lakh, income from only those policies with aggregate premium up to 5 lakh shall be exempt.” She further stated: “This will not affect the tax exemption provided to the amount received on the death of the person insured. It will also not affect insurance policies issued till 31st Mar ’23.”