Budget proposals likely to hit insurance plans that enjoy tax relief

Insurers have raised concerns that the proposed direct tax regime outlined in Budget 2020 could lead to reduced household savings and affect purchases of tax-exempt financial products.

Health and life insurance policies in India are generally bought as a tax saving measure.

The Indian government announced in the Budget that it would end some exemptions given for tax planning and the removal of a dividend-distribution tax for companies. Insurers will be taxed on dividend income, a key source of their profit before tax.

The Budget proposes new income tax rates – a lower rate without any tax deductions. The new tax rates give taxpayers the option to pay tax without opting for tax saving benefits, PG Dileep, general secretary of the LIC Agents’ Organisation of India, told Indo-Asian News Service. This could mean that taxpayers would no longer buy life insurance policies to save on tax, when previously they did so for tax planning purposes.

“Taxpayers buy insurance covers – life and health – in order to save on tax. When there is an option, then the general human tendency is not to buy insurance,” chartered accountant PS Prabhakar had told IANS.

Source: Asia Insurance Reivew