In Budget 2023, Union Finance Minister Nirmala Sitharaman proposed that where the aggregate of premium life insurance policies (other than ULIP) issued on or after April 1, 2023, is above Rs 5 lakh, income from only those policies with aggregate premium up to Rs 5 lakh shall be exempt. 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 March 31, 2023.
The minister has also proposed to limit income tax exemption from proceeds of insurance policies with very high value. Income from traditional insurance policies where the premium is over Rs 5 lakh will not be exempt from tax, Sitharaman announced. This proposal intends to limit income tax exemption from proceeds of insurance policies with very high value.
This means traditional insurance plans, such as money-back or endowment insurance policies, whole life insurance policies, and retirement plans, will become less appealing to the policyholders. As these plans do not experience return volatility owing to non-participation of their premium into stock markets, conservative investors find them more attractive.
The experts are clearly disappointed with the Budget announcement on insurance.
Rakesh Goyal, director, Probus Insurance Broker, said, in a statement: “The insurance business was hoping the finance minister would include a few giveaways in this year's budget. In the days leading up to the presentation of the budget, there was widespread speculation that Section 80C of the Income Tax Act would undergo revisions, and that existing deductions for health insurance premiums would be expanded. On the other hand, the budget proposed that only the income from policies (other than ULIPs) with an aggregate premium of up to Rs 5 lakh would be free from taxation.”
“In general, I believe this will have a detrimental impact on the insurance business. In addition to this, individuals who fall under the new tax regime and have an annual income of up to Rs 7 lakh will not be required to pay any tax. This will have a negative impact on the insurance industry. I anticipate that in the years to come, we will be headed in the direction that will put us in a position where we will no longer be eligible for any tax benefits, such as deductions under 80C and health insurance,” Goyal adds.
Yagnesh Doshi, co-founder and director, Raghnall Insurance Broking and risk management, said, in a statement: “We are disappointed with the recent budget announcement regarding the taxation of insurance premiums, as it will impact the high-value savings products that have been relied on by many customers. This, combined with the lack of increase in tax exemptions for premiums paid under health insurance, will negatively impact the growth of both savings and health insurance in India. Despite these setbacks, we remain committed to finding solutions and providing affordable insurance options to our customers while also adhering to regulations. We will also continue our efforts in promoting the importance of insurance and making it accessible to all.”
Ahead of the Budget, the industry stalwarts had expected the government to introduce a separate tax deduction limit mainly for life insurance premiums paid. They also expected incentives for the healthcare sector, with the rising medical costs.