Page 39 - Insurance Times February 2023

Budget 2023: Tax exemption removed

in insurance policies with premium

over Rs 5 lakh

Income from traditional insurance policies where "The Union Budget has always been about introducing newer
T the premium is over Rs 5 lakh will no more be reforms in the system for the betterment of the country and
the economy at large. Removal of tax-free status on certain
exempt from taxes, Finance Minister Nirmala
Sitharaman announced in her Budget speech.
life insurance policies, with premium above Rs 5 lakh will
not dampen the spirit of insurers and consumers at large.
The proposal intends to limit income tax exemption from
People have understood the significance of insurance and
proceeds of insurance policies with very high value.
living with a financial cushion, during the worst times in life.
It has been proposed that in cases where the aggregate
There could be a certain shift in focus from consumers
premium for life insurance policies — other than unit-linked
towards term plans, pure risk covers and investment-
insurance plans (ULIPs) — issued on or after April 1, 2023,
oriented unit link insurance," said Balachander Sekhar, Co-
is above Rs 5 lakh, income will not be exempt.
Founder of RenewBuy.
“This will not affect the tax exemption provided to the
The insurance sector was hoping the finance minister would
amount received on the death of the person insured. It will
include a few giveaways in this year's budget. In the days
also not affect insurance policies issued till March 31, 2023,”
leading up to the presentation of the budget, there was
the finance minister said.
widespread speculation that Section 80C of the Income Tax
“You could have one insurance policy or multiple policies Act would undergo revisions, and that existing deductions
where the aggregate premium exceeds Rs 5 lakh in a year, for health insurance premiums would be expanded.
the sum received will now become taxable,” said Archit
However, the budget proposed that the income from policies
Gupta, CEO, Clear.
(other than ULIPs) with an aggregate premium of up to Rs
However, the taxation proposal will be applicable only to 5 lakh would be free from taxation.
those policies, which are issued on or after April 1, 2023.
"This will have a detrimental impact on the insurance
“The aggregation will take place only for those policies,
business. In addition to this, individuals who fall under the new
which you bought from next financial year,” he said.
tax regime and have an annual income of up to Rs 7 lakh will
Notably, ULIPs with an annual premium of over Rs 2.5 lakh not be required to pay any tax. This will have a negative
per year had lost this exemption in the 2021 Budget. 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
According to experts, the latest move by the government is
a position where we will no longer be eligible for any tax
negative for the insurance sector.
benefits, such as deductions under 80C and health insurance,”
“While this will dampen the interest of individuals to buy
said Rakesh Goyal, Director of Probus Insurance broker.
high-value traditional insurances, it will increase the focus
Bharat Phatak, director of Scripbox believes that the
on term plans and pure risk covers which is good. A concern
provision is a part of the government's attempts to stop
is that it should not result in a significant shift towards purely
large tax savings by ultra HNIs through insurance policies
investment-oriented unit link insurances,” said Kapil Mehta,
and market-linked debentures etc.
Co-Founder, SecureNow Insurance Broker.
Ahead of the Budget 2023-24, insurance companies were Meanwhile, shares of insurance companies slumped up to
seeking a separate tax deduction basket for life policies and 10% on Sitharaman's renewed thrust for the new tax
a higher limit for health premium from the government. regime, where deductions are not allowed.

The Insurance Times January 2023 35