Finance Minister Nirmala Sitharaman, in her annual Union Budget speech yesterday, proposed to provide that where the aggregate of premiums for life insurance policies (other than unit-linked insurance policies [ULIPs]) issued on or after 1 April 2023 is above INR500,000 ($6,115), income from only those policies with an aggregate premium up to INR500,000 shall be exempt from income tax.
The provision will not affect the tax exemption granted on the amount received on the death of the insured. It will also not affect insurance policies issued up to 31 March 2023.
The Budget unveiled yesterday is for the fiscal year starting 1 April 2023.
Insurance executives say that the move does not bode well for the sector.
Mr Vighnesh Shahane, managing director and CEO of Ageas Federal Life Insurance, told The Economic Times, “This proposal is likely to dent the sales of non-par products which have been witnessing strong growth over the last few years, especially during the COVID pandemic. As the cap of INR500,000 is applicable to all life insurance policies across insurers, it may deter individuals from purchasing additional policies if they have exhausted their limit with their primary insurer.”
The move will impact savings products which are usually high value and margin products (though not protection products), reported the Indo-Asian News Service.
Fiscal boost
On the broader front, the Budget is seen as giving a boost to financial services, including insurance.
Mr Sarbvir Singh, president and CEO of Policybazaar.com, told Business World, “In the Budget 2023, it is laudable that the Finance Minister has kept improving the ease of business right at the centre of her announcements. In the insurance sector, everything hangs by the delicate thread of customer trust. Simpler KYC processes, enhanced DigiLocker services, and an overall push towards digital transactions will go a long way in improving customer experience. This in turn is bound to improve India’s insurance adoption.”
Mr Tarun Chugh, managing director and CEO of Bajaj Allianz Life Insurance, said, “Overall, the Budget is very positive with fiscal prudence and a clear focus on overall growth. As India continues to strengthen its economy, this Budget has laid the foundation for long-term growth across all sectors – agriculture, FinTech, infrastructure, social welfare, tourism and so on. It is balanced well with a push for both capex and consumption.”
