Budget 2023: Why insurance stocks took a beating after FM’s speech

Union Budget 2023: The finance minister pushed the new income tax regime that does away with exemptions on investments. She also announced curbs on exemptions involving high-value insurance policies

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India’s insurance sector, specifically life insurance firms, got a rude shock from the Budget 2023-24 on February 1. Finance minister Nirmala Sitharaman pushed for Indians to adopt the new income tax regime that does away with exemptions on investments. She also announced curbs on exemptions involving high-value insurance policies.

“(A) proposal…is to limit income tax exemption from proceeds of insurance policies with very high value,” Sitharaman said. From the new fiscal year 2023-24, earnings from insurance policies having an aggregate premium of more than Rs 5 lakh will not be exempt from income tax.

This does not apply to proceeds received on account of the death of the policyholder.

When insurance policies mature, the proceeds including bonuses are exempted from tax provided the premium paid in any year during the term of the policy does not exceed 10 percent of the actual sum assured. This exemption is now limited to those policies that have an aggregate premium of up to Rs 5 lakh.