Shares of life insurance companies tumbled by up to 11 per cent on Wednesday after the government announced to limit income tax exemption from proceeds of insurance policies in certain cases.
ICICI Prudential Life Insurance Company dropped 10.97 per cent to close at Rs 402.55 on the BSE.
HDFC Life Insurance Company Ltd fell 10.96 per cent, Max Financial Services Ltd slumped (9.45 per cent), SBI Life Insurance Company Ltd (9.31 per cent) and Life Insurance Corporation of India (LIC) (8.38 per cent).
According to Union Budget documents, an individual will have to pay tax on the maturity amount of life insurance policies where the aggregate annual premium exceeds Rs 5 lakh.
Finance Minister Nirmala Sitharaman in the Budget on Wednesday proposed "to provide that where aggregate of premium for life insurance policies (other than ULIP) issued on or after April 1, 2023, is above Rs 5 lakh, income from only those policies with aggregate premium up to Rs 5 lakh shall be exempt".
This will not affect the tax exemption provided to the amount received on the death of a person insured. It will also not affect insurance policies issued till March 31, 2023, she said.
Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance said the announcement is bit of a dampener for the insurance industry and for increasing penetration of insurance and household financial savings in India.
Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development at Fintoo, said that one of the major setbacks that are given in the finance bill is related to the taxability of the maturity proceeds of a life insurance policy.
As per the Budget proposal, maturity proceeds of all life insurance policies (other than unit-linked insurance policies or ULIPs) that are issued after April 1, 2023, and have an annual premium of more than Rs 5 lakh will now be taxable.
"One should note that if an individual has more than one life insurance policy, which is issued on or after the 1st of April 2023 and also if the aggregate amount of premium of such policies exceeds Rs 5 lakh, then the maturity amount will be taxable," Manchanda said.
Shares of General Insurance Corporation of India tanked as much as 12.42 per cent to settle at Rs 161.20.
Equity benchmarks Sensex and Nifty ended on a mixed note on Wednesday. BSE Sensex climbed 158.18 points or 0.27 per cent to settle at 59,708.08 points while NSE Nifty declined 45.85 points or 0.26 per cent to end at 17,616.30 points.