Insurance companies will on Tuesday meet Finance Minister Nirmala Sitharaman to seek relaxation on taxation on insurance, CNBC-TV18 has reported. The industry body seeks to raise the limit on premium for taxation to Rs 10 lakh a year as against the budget announcement of Rs 5 lakh a year.
Industry players feel that taxing policies with a premium of Rs 5 lakh a year may hurt retirement savings severely.
In the latest Budget Speech 2023, the finance minister announced that maturities of life insurance policies, except ULIPs, with an annual premium of above Rs 5 lakh after April 2023 will now be taxed. Earlier, it was tax-free.
Sitharaman said, “It is proposed to provide that where an aggregate of premium for 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.”
Following this, brokerages downgraded life insurance stocks and cut target prices. CLSA has cut target prices for life insurance coverage by 25 to 35 per cent. It has downgraded HDFC Life to ‘sell’, Max Financials to ‘underperform’, ICICI Pru Life and SBI Life to ‘outperform’ from all ‘buys’ previously.
Jefferies says that the new Budget proposal is negative as it dilutes attraction of top-selling products- non-par and par – versus banks.
Morgan Stanley said the proposal is likely to impact business growth from high net worth individuals in non-par guaranteed return product segment. “These products have been drivers of APE growth and VNB margin expansion in recent years. Hence this is a negative for the sector, see meaningful downside risks to FY24 APE and VNB growth forecasts,” it said.
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