Insurance policies where premium is above Rs 5L no more tax exempt
Insurance policies where the premium is over Rs 5 lakh will no longer be tax exempt, as per the provisions in the Union Budget 2023-24.
Kapil Mehta, Co-founder, SecureNow Insurance Broker said the income from traditional insurances where the premium is over Rs 5 lakh will not be tax exempt. While, this will dampen the interest of individuals to buy high value traditional insurances, it will increase the focus on term plans and pure risk covers which is good.
A concern is that it should not result in a significant shift towards purely investment oriented unit link insurances, Mehta said.
Arihant Bardia, CIO and Co Founder, Valtrust said if premium paid on insurance policies (excl. ULIP) exceeds Rs 5 lakh in a year, then the proceeds from those policies will be taxable (except in case of death benefit). ?
Bardia said this is negative for insurance -- as it will impact savings products which are usually high value and margin products (though not protection). However, smaller policies remain unaffected. Overall a negative for insurance companies as it will impact the high value premium policies -- thus impacting overall industry GWP growth.
A similar provision was already introduced for ULIPs in 2021 wherein the aggregate premium was restricted to Rs 2.5 lakh in a year for tax exempt proceeds", said Bardia.
Mehta said improvements in ease of doing business specifically, the changes pertaining to simplification of the KYC process, one stop solution for identity and address updating, common business identifier, unified filing, and entity digilocker will make placement of insurances easier. Claims payment would also be facilitated.
Changes in personal income tax will increase personal disposable income. This will result in individuals ability to buy better, higher value insurances to manage their risk, Mehta said.
