Life insurance stocks fall up to 10% after Budget pushes for new tax regime

Life insurance stocks sold off heavily after the Union Budget pushed for a new tax regime and curtailed tax benefits on high value insurance policies.

On BSE, LIC was down more than 8 per cent, HDFC Life was down more than 10 per cent, Max Financial was down more than 9 per cent, SBI Life Insurance was down more than 9 per cent while ICICI Prudential Life Insurance was down more than 10 per cent.

Vinod Nair, Head of Research at Geojit Financial Services said life insurance players witnessed heavy selling as the Budget pushed for the new tax regime, making insurance products less appealing as a tax-saving tool.

Insurance policies where the premium is over Rs 5 lakh will no longer be tax exempt, as per the provisions in Union Budget 2023-24.

Kapil Mehta, Co-founder, SecureNow Insurance Broker said the income from traditional insurances where the premium is over Rs 5 lakh will not be tax exempt. While, this will dampen the interest of individuals to buy high value traditional insurances, it will increase the focus on term plans and pure risk covers which is good.

A concern is that it should not result in a significant shift towards purely investment oriented unit link insurances, Mehta said.

Arihant Bardia, CIO and Co Founder, Valtrust said if premium paid on insurance policies (excl. ULIP) exceeds Rs 5 lakh in a year, then the proceeds from those policies will be taxable (except in case of death benefit). �

Bardia said this is negative for insurance -- as it will impact savings products which are usually high value and margin products (though not protection). However, smaller policies remain unaffected. Overall a negative for insurance companies as it will impact the high value premium policies -- thus impacting overall industry GWP growth.

The New Tax Regime (NTR) will now be considered as a default regime but it may not necessarily be a better regime for all taxpayers, experts said.

Preeti Sharma, Partner - Tax and Regulatory Services, BDO India said the Finance Minister has taken conscious efforts to make the New Tax Regime (NTR) more attractive for the taxpayers.

"The NTR shall now be considered as a default regime for all taxpayers but that does not necessarily mean a better regime for all. Taxpayers still need to look at their personal situation, various investments and expenditures that are eligible for tax exemption under the old regime and then decide which regime is better for them," Sharma said.

Although the NTR is the default regime, an individual still has an option to opt for the old regime if the same is more beneficial in terms of tax outflow, Sharma