The ink’s barely dry on Finance Act 2025 amendments, but high-net-worth Indians are reeling: Proceeds from life insurance policies with premiums over Rs 5 lakh annually are now taxable as of October 1. Affecting 20 lakh policies worth Rs 2 lakh crore, this revokes Section 10(10D) exemptions, sparking outrage in parlors from Delhi to Dubai.
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The Rule That Rocked the Boat
Budget 2025-26 aimed to curb “premium dumping”—HNIs parking Rs 50 lakh+ for tax-free maturity. Now, gains (maturity/bonuses) are taxed at slab rates (up to 30% + cess), minus premiums paid. “It’s a revenue grab amid fiscal tightening,” blasts Avinash Singh of Aranca. Exceptions? Death benefits and ULIPs (under Rs 2.5 lakh premium) stay exempt.
Data: Life premiums grew 4.8% in 2024 to Rs 3.5 lakh crore, per IRDAI; 2025 projections dip to 5% sans incentives. Comparisons: Pre-2023, full exemptions fueled 15% CAGR; now, like US’s 40% estate tax cap, it reins in ultra-wealthy.
X fury: #InsuranceTax trended with 40K posts, @TaxRebel tweeting, “Rs 1 crore maturity? Pay Rs 30 lakh tax—robbing savers!”
Industry Backlash and Policy Shifts
Insurers like LIC (VNB up 7.6% Q2) absorb GST hikes, but sales slump 10% post-rule. Swiss Re forecasts non-life growth at 7.3% for 2025-29, but life lags at 5%. AHPI-insurer meets push unified empanelments for faster claims, amid Rs 50,000 crore pending.
Tax wishlist for Budget 2.0: Dedicated 80C deduction for premiums, slab revisions to Rs 12 lakh nil tax. NRIs? Gains on Indian policies taxable if sourced here, per DTAA.
Reactions: 70% policyholders in Ficci poll oppose; PSUs like New India Assurance absorb losses, unlike privates passing to agents.
Who Hurts Most—and Who Dodges
HNIs (income > Rs 50 lakh) face max hit: A Rs 10 lakh premium policy maturing Rs 15 lakh yields Rs 3-4 lakh tax. Middle-class? Unaffected, as most pay < Rs 2 lakh. Jewellers note deferred gold schemes down 20% on gold at Rs 78,000/10g.
Broader: GSTR-9C for FY25 due Dec 31; ITAT wins for ancestral land sales (Rs 13 crore tax-free if joint). Vivek Oberoi’s Rs 1,200 crore fortune? “Paanwala basics: Save first,” he shared in October interview.
Smart Moves for Policyholders
- Switch to ULIPs: Tax-free if < Rs 2.5 lakh premium; 12-15% returns via equity.
- Rebalance: Max 80C (Rs 1.5 lakh) via ELSS; health premiums under 80D.
- NRI Tip: Use DTAA for credits; avoid LRS TCS over Rs 10 lakh.
IRDAI’s April 2026 anti-fraud deadline adds cybersecurity layers. As Singh says, “Adapt or pay—2025’s tax maze favors the agile.”
- Key Takeaways:
- New 2025 tax on life policy proceeds (premium > Rs 5 lakh) at slab rates; exemptions for death benefits/ULIPs (< Rs 2.5 lakh).
- Impacts 20 lakh policies (Rs 2 lakh crore); life premiums dip to 5% growth, non-life at 7.3% per Swiss Re.
- Strategies: Switch to ULIPs for tax-free gains; max 80C deductions amid Rs 3.5 lakh crore industry size.