India:New income tax rules to impact insurance agents and industry

| 13 Feb 2020

Because of the new simplified income tax regime announced in the Union Budget, sales of life and health insurance policies which qualify for income tax breaks are expected to take a big hit, reported local media.

The proposed new income tax slab rates - a lower rate without any tax deductions - may put some money in the hands of taxpayers but would affect the insurance industry and agents’ sales.

The new tax rates give the option to the tax payer to pay tax without opting for tax saving measures such as buying insurance policies like life, health, or investing in public provident fund (PPF) and others, said P.G. Dileep, General Secretary of LIC Agents' Organisation of India.

According to the reports, insurance in India is still largely sold and not bought. Insurance penetration which is already low in India, is expected to drop further with this new measure. Taxpayers buy life and health insurance covers mainly as a tax saving measure.

When there is an option without an incentive, then the general human tendency is not to buy insurance. Insurers see this as a major setback.

As per the union budget's new simplified income tax regime, Times of India reported that:

  • those earning Rs 5-7.5 lakh can now pay 10% without exemption as against 20% with exemption
     
  • those earning Rs7.5-10 lakh can now pay 15% without exemption as opposed to 20% with exemption
     
  • those earning Rs 10-12.5 lakh can pay 20% as opposed to 30%, and
     
  • those earning Rs12.5-15 lakh can pay 25% as opposed to 30%


Usually, on every 31 March, it was common for the industry to work late into the night on accepting last-minute proposals as consumers tried to file for tax exemptions just before the deadline. It looks like there might be a change this year.

Insurance Regulatory and Development Authority of India (IRDAI) officials were reportedly caught by surprise by the Union Finance Minister’s budget announcement. An IRDAI member said the regulatory body was not consulted on the matter, local media reported.

 

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