Insurers may seek tweak in plan to end sops

Mumbai: Life insurance companies, which garner premiums that often fund long-gestation infrastructure projects, are likely to approach the Centre seeking some tweaks to the budget announcement that scrapped tax benefits for large-ticket traditional plans while making rebate-linked savings unattractive for the average taxpayer.

Senior insurance executives said suggestions from companies are being collated for submission to the government in the next few days through industry grouping, Life Insurance Council of India.

The insurance industry wants the policy premium taxation cut-off to be raised to ₹10 lakhs from ₹5 lakhs to soften the blow on their business.

The budget presented on Wednesday has proposed that annual income from insurance policies beyond the aggregate premium of Rs 5 lakh a year will be taxed from the coming fiscal year. The new rule does not include returns from unit linked insurance plans (ULIPs) and the amount received on the death of a person insured via term plans.
“The proposal is quite a shocker for the industry because traditional plans are an important part of life insurance companies. Increasing that cut off to Rs 10 lakhs will certainly provide some relief,” said a senior industry executive. “There is also a suggestion that traditional plans be brought under the long-term capital gains ambit, which will provide indexation benefits and reduce the tax outgo for investors.”

Shares of top life insurers, such as HDFC Life, Life Insurance Corp and ICICI Prudential Life, have lost more than 10% over two days, extending to Thursday the rout that began immediately after the Budget announcement. Life Insurance Council secretary SN Bhattacharya said the industry is still in the process of getting suggestions and a representation could be made to the government as early as next week.

Meanwhile, the Insurance Regulatory and Development Authority of India has also called for information from life insurance companies on the actual impact of the government move on their business.Heavy Reliance
For some companies with a heavy dependence on traditional plans, the impact would be deep.

Vighnesh Shahane, CEO, Ageas Federal Life Insurance, said such traditional plans make up 70% of premiums collected for their company and could dent sales.

“Removing the tax benefit means these plans are now like fixed deposits without the high returns which are offered by unit linked plans. The fact that it is on an aggregate basis means all companies will be impacted. The industry is resilient and will fund a way through but this will hit business in the short term for sure,” Shahane said.

Separately, in a notice to stock exchanges, ICICI Prudential Life Insurance said such traditional plans make 28.6% of its annual premium equivalent, although the large-ticket policies above Rs 5 lakh are much lower.

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