Finance Minister Nirmala Sitharaman (Nirmala Sitharaman) has made a big announcement regarding the insurance policy. He presented the Union Budget (Union Budget 2023) said that if the premium of a traditional insurance policy is more than Rs 5 lakh, then the amount received on maturity of that policy will not be tax-free. The purpose of this proposal is to limit the tax exemption on the amount received from high amount insurance policies. This announcement will impact the sales of insurance companies.
New rules will be applicable on policies issued from April 1
It has been said in the Finance Minister’s proposal that if the total premium of a life insurance policy, excluding ULIP, is more than Rs 5 lakh, then the benefit of tax exemption on the income from the policy will not be available. This rule will be applicable to insurance policies issued on or after April 1, 2023. The Finance Minister has said that this rule will not affect the policies issued till March 31, 2023.
Also read: Budget 2023: Is your income between 5-7 lakhs? Know how much you will be able to save in tax?
ULIP rules have changed in 2021 itself
Clear’s CEO Archit Gupta said, “You may have one or multiple insurance policies whose total premium exceeds Rs 5 lakh in a year. In such a situation, the sum assured will be taxable.” It is important to keep in mind that the tax exemption in case of ULIP was withdrawn in 2021 itself. Then it was said that if the premium of ULIP exceeds Rs 2.5 lakh annually, there will be no tax exemption on the income from it.
Insurance industry will be affected
Experts say that this decision of the government will have a negative impact on the insurance industry. Kapil Mehta, co-founder of SecureNow insurance broker, said, “With this move, people will not show interest in buying high-value traditional policies. But, this will increase people’s focus on term plans and pure risk covers, which is a good thing.”
Mehta said that there is a concern that due to this decision, the inclination of investors may increase towards purely investment based ULIPs. The insurance industry had high expectations from the Union Budget 2023. The industry had demanded a separate basket of tax deductions for life insurance policies. But, this demand has not been fulfilled.
Changes in the new tax regime will also affect the insurance industry.
The government has made several big announcements to make the new income tax regime attractive. Since no deduction is available on investments in tax saving instruments in this regime, it is believed that there may be a decline in the demand for insurance products in terms of tax saving. This is the reason why after the presentation of the Union Budget on February 1, there was a decline in the shares of insurance companies.
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