Before the Union Budget was presented, speculation was rife about the government potentially revoking the preferential corporate tax treatment extended to the life insurance industry. However, the Budget did not address this issue. Instead, Finance Minister Nirmala Sitharaman indicated that a new Income Tax Bill would be introduced later, keeping industry players on edge regarding the future of these tax benefits.
The much-anticipated new I-T Bill has now provided clarity, maintaining status quo, coming as a big significant relief to the industry, as noted by Investec, which stated in its report that the absence of any adverse tax changes removes a key overhang from the sector and is a major positive development.Had the preferential tax treatment been withdrawn, the embedded value of life insurance companies could have faced an estimated 7-9% reduction. Additionally, profit margins for publicly listed life insurance firms would have come under pressure. However, with the tax regime remaining unchanged, Investec believes there will be no near-term disruptions, ensuring stability in valuations and profitability.
Currently, life insurance companies enjoy a corporate tax rate of approximately 12.5%, compared to the significantly higher rate of 34-35% paid by other sectors. This preferential treatment has been a key factor in supporting the industry’s growth and financial health.
Also read: Life insurance premiums drop 8% in January; private players outperform LIC
