In the Union Budget 2024-25, the Finance Minister proposed reducing the TDS rate on life insurance policy payouts and insurance commissions from 5% to 2%. This change will take effect on October 1, 2024, for policy pay-outs, and from April 2025 for insurance commissions. The Budget also includes measures to prevent life insurers from claiming non-business expenses, which will apply from April 1, 2025. Industry leaders welcomed these changes, highlighting their potential to boost liquidity for customers and contribute to a more inclusive economic growth.
Key Changes:
- Life Insurance Policy Pay-outs:
- TDS rate reduced from 5% to 2%.
- Effective from October 1, 2024.
- Amended Section 194DA of the Income Tax Act.
- Applies to policy pay-outs, including sums by way of bonus.
- Insurance Commission:
- TDS on insurance commissions reduced from 5% to 2%.
- Effective from April 2025.
- Amended Section 194D of the Income Tax Act.
- Applies to remuneration or rewards for soliciting or procuring insurance business, including renewals and revivals.
Additional Measures:
- Non-Business Expense Claims:
- Amendments to prevent life insurers from claiming non-business expenses.
- Effective from April 1, 2025.
- Amendments to Section 37 of the Income Tax Act.
- Expenses not admissible under Section 37 will be included in the profits and gains of life insurance business.
Industry Reactions:
- Positive Reception:
- Reduction in TDS welcomed as it is expected to boost customer liquidity.
- Seen as a move that will enhance employment, skill development, and the welfare of the middle class.
- PB Fintech’s Joint Group CEO Sarbvir Singh highlighted the budget’s forward-thinking approach and its potential to create a more inclusive and prosperous India.
- Concerns:
- Introduction of a clause pertaining to non-deductible expenses in Section 37 may lead to tax litigation, according to IndiaFirst Life MD and CEO Rushabh Gandhi.
- Increased Capital Gains Tax expected to impact tax liabilities for ULIP policyholders, except those with policies under ₹2.5 lakh annual premium.
