Finance minister Nirmala Sitharaman increased the foreign direct investment (FDI) limit in the insurance sector from the existing 49% to 74%. “I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in insurance companies and allow foreign ownership and control with safeguards,” the finance minister said while presenting the Budget 2021-22.
In 2015, the government hiked the FDI cap in the insurance sector from 26% to 49%. The government has earlier allowed 100% foreign direct investment in insurance intermediaries. Intermediary services include insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors.
Second announcement in the Budget was made in respect of taxation of ULIPs. 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 Rs. 2.5 lakh.
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.
“For annual premium above Rs. 2.5 lakh for ULIPs, the maturity benefit will now be taxed as Capital Gains. Thus, the budget endeavors to selectively bring in taxation parity between life insurance companies and mutual funds,” said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance Company.
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, “Instances 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 premiums defeats the legislative intent… to provide benefit to small and genuine cases of life insurance.”
Thus, it has proposed that ULIPs where the annual premium paid of over Rs. 2.5 lakh would be treated as equity oriented funds. The rate of tax will depend on the period of holding.
The government also announced that two public sector banks and one general insurance company will be privatised and LIC will be listed on the bourses in the financial year 2021-22 as part of the consolidation in the banking and insurance sectors.
The Union Budget of 2021-2022 has given a major thrust on accelerating capital requirement through divestment and increase in FDI in the insurance sector. The Vehicle Scrappage policy will help in sales of new Motor Vehicles and in turn will contribute to the Increase in New Motor Premium. The increase in FDI, announced by the FM, from 49% to 74% in the Insurance Sector will give a major boost to the Insurance Industry and will help in garnering more capital, improve solvency and retention capacity within our Country. The Budget proposes to privatize One Public Sector Company in FY 2021-22, which is a good move to bail out cash starved PSU and improve efficiency. Also, the LIC IPO proposed in FY 2021-22 will increase the capital Market and allow the government with its divestment process and reduce the Fiscal Deficit. – Mr. Sumit Bohra, President, Insurance Brokers Association of India (IBAI) & CEO, Globe Secure Insurance Brokers Pvt. Ltd.
The COVID-19 pandemic has shown that further penetration of insurance in India is needed and for that capital infusion is required. The FDI hike will give the foreign promoter an opportunity to buy out their cash-strapped Indian partners if required and provide the needed cash infusion,” Vignesh Shahane, managing director and chief executive officer, Ageas Federal Life said.
Commenting on the announcement, Shanai Ghosh, executive director and chief executive officer, Edelweiss General Insurance said, “This move will help increase avenues to bring in capital inflows in order to realise the full potential of Insurance in the country. This move will help strengthen the sector and also help further penetration of insurance in the country, which still is far behind the world average.”
“The Union Budget indeed as assured by the Finance Minister will lead to aspirational India, economic development of our country and a caring society. Through this Budget, the Government has focused on infrastructure, rural growth, encouraging use of technology and generating employment which in turn will benefit the economy. I firmly believe that the kind of healthcare facilities in a country determine the life expectancy of its citizens. By setting up a viability fund to develop and empanel more hospitals in Tier II and Tier III cities through PPP model under AB-PMJAY and allocating Rs. 6,000 crore for the same, will allow beneficiaries to access quality medical treatment. Thus, providing a much needed boost to penetration of health insurance. Additionally, by proposing this optional new personal income tax regime, the Government will be putting more money in the hands of people which should boost consumption.” said Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance.
“The budget attempts a balancing act of promoting long term growth while maintaining fiscal prudence given the constraints. It pursues long-term measures towards infrastructure development, higher education, technology adoption etc. which is positive. For the non-life insurance industry, higher spends on infrastructure i.e. roads, airports, water pipeline networks will drive demand for fire and engineering covers. Health insurance coverage should get a boost given the focus on expanding the hospital network for Ayushman Bharat. The capital infusion in the state owned insurers was necessary and will hopefully encourage better underwriting discipline in the future.” said, Bhargav Dasgupta, MD & CEO – ICICI Lombard General Insurance
“This is a ” LagheRaho” Budget as there were no quick fixes or grandiose plans but lots and lots of initiatives which will all help keep the economy on course for the 10% realistic Nominal GDP growth planned. Big spending push through the National Infra Pipeline, Transport sector and 16 initiatives on Farm growth should help rural economy and growth. Fiscal deficit at 3.5% for Fy 21 is a relief as we stay the course and yet spend extra within limits. Disinvestments target of 2.1 L cr will have to be met through LIC, IDBI etc. Overall, time to switch off TV Channels and go back to the hard grind of execution to get the economy on track. So, as we chase the 5 tn GDP target, its ‘LageRaho’ for now.” said, Mahesh Balasubramanian, MD & CEO, Kotak Mahindra General Insurance Co. o
