The Center is considering allowing these investments to be adjusted for inflation. (File)
New Delhi:
India’s government is unlikely to change its budget proposal to impose a tax on gross income from high-value life insurance policies, two government officials said on Wednesday, amid pressure from insurance companies to reconsider the move.
Presenting the 2023/24 budget on February 1, the government said it would remove the gross income tax exemption for life insurance policies with aggregate premiums of more than 500,000 rupees ($6,103) after they expire.
The move, which will come into effect for policies issued from April 1, has surprised insurers, with top executives of the company meeting Finance Minister Nirmala Sitharaman and finance ministry officials and asking them to reconsider the proposal.
“The government does not want to revise the Rs 500,000 cap as it will only affect the high-income earners and not the common man,” said one of the officials on condition of anonymity.
However, the government is considering allowing these investments to be adjusted for inflation, known as “indexation”, the official added.
The Department of Financial Services has recommended to the Prime Minister’s Office to allow these indexation benefits, another government official said, while the PMO will take the final decision.
India’s finance ministry did not respond to emails and messages from Reuters seeking comment. All three government officials declined to be named because parliament has yet to pass the budget.
Indexation means adjusting the purchase price at the rate of Cost Inflation Index (CII) published periodically by the Income Tax Department.
If allowed, indexation reduces the policyholder’s tax liability, says independent tax consultant Kuldeep Kumar.
The relief means that insurance proceeds will be taxed as capital gains and not “income from other sources” as proposed in the budget, bringing down the tax rate from 30% to 20%, Kuldeep Kumar said.
(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)
