1 min read.Updated: 03 Feb 2020, 01:07 PM ISTAbhishek Vishnoi, Bloomberg
A large part of the ULIP sales are often linked to personal income tax planning
Separately, the government’s plan to sell part of its stake in LIC may also take investors’ focus away from insurers that are already listed in the stock market
India’s steps in the budget to end some exemptions given for tax planning and the removal of dividend distribution tax for companies will weigh on the earnings prospects of insurers.
The lower tax rates under the alternative tax slabs will only apply to those forgoing exemptions, which include investments in certain insurance products. Insurers will be taxed on dividend income, a key source of their profit-before-tax.
Separately, the government’s plan to sell part of its stake in Life Insurance Corp. of India, which has $434 billion in total assets, may also take investors’ focus away from insurers that are already listed in the stock market.
Here is what the analysts said about the budget’s impact on the insurers:
UBS Group AG
Sanjena Dadawala and Vishal Goyal.
“There is a worry that tax benefit was an important demand driver for the industry and people will no longer ‘need’ to invest in life insurance if they switch to the new regime."
The taxing dividend income in the hands of insurers will increase their effective tax rate.