Insurance experts show mixed feelings as the Finance Minister, Nirmala Sitharaman announced a slew of measures for the insurance industry in her budget speech on Monday. While the industry veterans were happy about the increase in FDI limit announced, they were discouraged of the proposal to tax the maturity proceeds of unit linked insurance plans (ULIPs) with an annual premium above ₹2.5 lakh.
The Budget says, “Under the existing provisions of the Income Tax Act, there is no cap on the amount of annual premium being paid by any person during the term of the policy. Instances have come to the notice where high net worth individuals are claiming exemption under this clause by investing in Ulips with a huge premium. Allowing such exemption in policy/policies with huge premium defeats the legislative intent of this clause.”
“The government has announced an increase in FDI for insurance sector from 49% to 74%, which is a positive move and will help in the growth of the sector. However, the move on taxation change for ULIPs (of higher ticket size; annual premium of more than 2.5 lakhs) would have an impact on such investments. This tends to reduce the competitive advantage that ULIPs enjoyed as compared to other short term investment vehicles,” says Tarun Chugh, MD & CEO, Bajaj Allianz Life.
Tax benefits still remain in the event of death of the life assured or in the case of ULIP policies where annual premium is ₹2.5 lakh or below.
“The budget endeavors to selectively bring in taxation parity between Life Insurance companies and Mutual Funds, says Rushabh Gandhi, Deputy CEO, IndiaFirst Life.
Listing of Life Insurance Corporation (LIC) and disinvestment of 2 PSU Banks and one public sector General Insurance Company is a welcome move, Gandhi