Union Budget 2023: Insurance loses tax-saving lustre, its stocks rapidly fade

While LIC shares fell 8.4 per cent, those of SBI life declined 9.3 per cent. ICICI Prudential Life and HDFC Life witnessed a sharp decline of 11 per cent and Bajaj Finserv dipped by 5.65 per cent.

Written by Aanchal Magazine , Hitesh Vyas

New Delhi | Updated: February 2, 2023 07:39 AM IST

4 min read

The Nifty 50 index was down 0.3% at 17,636, while the S&P BSE Sensex rose 0.3% to 59,714.32 as of 2:28 pm. (File)

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AS THE fine print became clear on the Union Budget, the shares of life insurance companies fell sharply. Reason: Word had trickled into the markets by then that the tweaks in slabs and rates in the new tax regime (NTR) may result in tax-payers shifting from the old regime — and lead to a dip in demand for life insurance products as tax-saving instruments.

This sentiment was reinforced by another announcement about imposing tax on income from life insurance products — other than ULIPs, which already have a cap — where the total annual premium exceeds Rs 5 lakh.

While LIC shares fell 8.4 per cent, those of SBI life declined 9.3 per cent. ICICI Prudential Life and HDFC Life witnessed a sharp decline of 11 per cent and Bajaj Finserv dipped by 5.65 per cent.

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Market participants say that with the tweaks in NTR slabs and rates, the Government is offering nearly the same benefits as those available in the old tax regime with all the applicable deductions that include investments under section 80C (life insurance premium, PPF and home loan principal, among others), interest outgo on home loans and premium payment on health insurance.

With the gap in benefits between the old and new tax regimes narrowing, experts feel that many tax-payers may find it tempting to move to the NTR, which has no compliance burden.

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“Life-insurance stocks witnessed significant selling on demand concerns as the Budget proposals made such insurance schemes less appealing as a tax-saving instrument. The Union Budget has provided a higher impetus for individuals to shift to the new tax regime, which does not favour tax exemptions from investments in insurance schemes,” Cyril Charly, research analyst, Geojit Financial Services, said.

“Adding concerns to the growth outlook, it was also proposed to tax the income earned from life insurance products (other than ULIPs) issued after April 1, 2023, where the total annual premium exceeds Rs 5 lakh. This has taken away the tax-free advantage of high-value traditional insurance policies, making them less attractive for investments. This has caused investors to reconsider the sector’s growth prospects, forcing them to stay sidelined,” Charly said.

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The CEO of a financial service firm said that with the tweaks in the new tax regime, the Government has underlined that individuals should take a home loan solely for home needs, not also to save on tax — and buy insurance products for protection and not for the additional benefit of saving on tax.

Union Budget 2023: All you need to know

Aanchal Magazine

Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there. ... Read More

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