Proposal to hike FDI in insurance to 74% could bring in capital
Surabhi
Mumbai |
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Amid insurance companies dealing with higher claim payouts during the ongoing Covid-19 pandemic, Finance Minister Nirmala Sitharaman has proposed to enhance foreign direct investment limit in insurance to 74 per cent, along with relevant safeguards.
“I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards,” she said as part of the Union Budget 2021-22.
Under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50 per cent of directors being independent directors, and specified percentage of profits being retained as general reserve, she further said.
Hike in FDI in insurance sector to increase capital inflows: experts
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 ₹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 ₹2.5 lakh for ULIPs, the maturity benefit will now be taxed as Capital Gains. Thus, the budget endeavours to selectively bring in taxation parity between life insurance companies and mutual funds,” said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance Company.
Additions over ₹2.5 lakh a year to be taxed.
The Union Budget has proposed taxing the income on provident fund contributions of over ₹2.5 lakh a year, usually made on a voluntary basis by employees.
A similar tax exemption offered to investors in unit-linked insurance products has also been capped to ensure that maturity benefits accruing from premium payments over ₹2.5 lakh a year, will be subjected to capital gains tax.
For contributions upto ₹2.5 lakh a year into Employees’ Provident Fund, tax exemptions will remain along with guaranteed returns, Finance Minister Nirmala Sitharaman said.
“However, some people go to the extent of contributing ₹1 crore each month… what would be his salary? For him to get both tax concession and an assured income, is not comparable with an employee who earns ₹2 lakh and gets 8% return,” the minister said.
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