Tax exemption on maturity proceeds of ULIPs or the unit linked insurance plans offering components of both life insurance and investment, in debt and equity, will be available only if the annual premium paid is upto \u20b92.5 lakh.<\/p>\n
The Budget proposal will apply to ULIPs purchased on or after February 1. However, the amount received on death, by nominee, will continue to remain exempt without any limit on the annual premium.<\/p>\n
\u201cFor annual premium above \u20b92.5 lakh for ULIPs, the maturity benefit will now be taxed as Capital Gains. Thus, the budget endeavours to selectively bring in taxation parity between life insurance companies and mutual funds,\u201d said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance Company.<\/p>\n
Under existing provisions of the Income Tax Act, there is no cap on the amount of annual premium paid by any person during the term of the policy. Stating this, the Budget documents said, \u201cInstances have come to the notice where high networth individuals are claiming exemption under this clause by investing in ULIP with huge premium. Allowing such exemption in policy\/policies with huge premium defeats the legislative intent… to provide benefit to small and genuine cases of life insurance.\u201d<\/p>\n
Thus, it has proposed that ULIPs where the annual premium paid of over \u20b92.5 lakh would be treated as equity oriented funds. The rate of tax will depend on period of holding.<\/p>\n
Another Budget announcement of significant import for the insurance sector was the proposal, amending the Insurance Act, 1938, to increase FDI limit from 49% to 74% in insurance companies and allowing foreign ownership and control with safeguards.<\/p>\n
\u201cUnder the new structure, the majority of directors on the Board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as general reserve,\u201d Finance Minister Nirmala Sitharaman said.<\/p>\n
A longstanding demand, increase in the FDI limit should catalyse the longterm development and growth of the industry, said Bhargav Dasgupta, MD and CEO of ICICI Lombard General Insurance.<\/p>\n
Max Life Insurance MD and CEO Prashant Tripathy said increase in the FDI limit to 74% will provide the companies committed funds to improve insurance penetration in the country. It will also bring in better technical knowhow, innovation and new products.<\/p>\n
Mr. Gandhi said hiking the FDI limit would lead to increased capital inflows and boost growth potential.<\/p>\n