Life insurers to approach FinMin seeking clarity on Budget tax announcement

After the Union Budget for 2023-24 proved to be a dampener for the life insurance industry, sector players are now joining hands to approach the Finance Ministry likely to seek a rollback of or clarity on the tax announcement. The most crucial thing being sought is to increase the tax exemption limit to Rs. 10 lakh from Rs. 5 lakh announced in the Budget, and to make the cap applicable on single policies and not on the cumulative policies held by an individual.

According to sources instead of individual companies, life insurers are expected to make a representation via the Life Insurance Council or one of the CFO industry groups and that IRDAI will be kept in the loop.

The Budget proposed limiting tax exemption from proceeds of insurance policies with very high value. Effective April 2023, aggregate premium from policies other than ULIPs, of over Rs. 5 lakh, will be taxable under ‘Income from Other Sources’. Following the announcement, shares of listed life insurance companies fell 8-12 per cent.

Insurers have said that while the impact on their bottomline will be minimal due to the taxation being applicable only on high value policies, demand for such covers is likely to fall substantially in the absence of any tax benefit, as traditional products have largely been sold as stable, tax free return on investment.