Tribune News Service
Vijay C Roy
Chandigarh, February 2
The Budget has proposed to take away the tax-free advantage from traditional insurance plans if the annual premium is above Rs 5 lakh in a year on the policies issued on or after April 1. Insurers feel this may lead to surge in the purchase of term policies that are pure life insurance policies without the element of savings. The proposal, will, however, not impact taxation of unit-linked insurance plans (ULIPs), term insurance and old policies.
Pure life policy
The proposal to tax proceeds of high-value policies may lead to rise in term insurance policies that are pure life policies without the element of savings. Sanjib Jha, CEO, Coverfox group
“With this announcement, the proceeds of these policies will be taxed as per an individual’s tax slab, expect in case of demise. This announcement is mainly for insurance policies which are purchased from the point of view of long-term savings. This may lead to an increase in the purchase of term insurance policies that are pure life insurance policies without the element of savings,” said Sanjib Jha, CEO, Coverfox Group.
Life insurance policies are taken against the risk of life of a person. In order to curb blanket exemptions on such policies, the Finance Bill 2023 proposes to exclude policies (other than ULIP) which give insured investment-based returns from such exemptions.
“The proposed change is in line with the earlier amendment which was brought in by the Finance Act, 2021 to tax the high-value ULIP policies. Hence, the insurance companies will now have to relook at the product strategy which could impact the taxability in the hands of the policyholders and would need to demark such policies being construed as non-investment policies,” said Manoj Purohit, Partner & Leader – Financial Services Tax, BDO India.
The industry feels their expectations were not met in the Budget. “We would have liked to see a few strategic announcements in the insurance sector, such as an increase in FDI to 100% and reduction in tax for foreign reinsurance branches. We were expecting some tax concessions such as reduction in GST rate on health & life insurance from 18% to 5% and creating a separate section for exempting life insurance premium instead of including it in an already crowded Section 80C,” said Praveen Vashishta, chairman, Howden Insurance Brokers India Pvt. Ltd.
(This story has not been checked by JK Mega and is auto-generated from other sources)