Budget 2023: Insurance stocks tank

Shares of insurance companies ended the budget day deep in the red. Two key announcements from Finance Minister Nirmala Sitharaman in Budget 2023 were seen as the triggers for this sharp decline.

The Finance Minister’s renewed push for the new tax regime, with the income tax rebate limit being increased from 5 lakh rupees to 7 lakh rupees, was seen as a big dampener for the insurance companies. Remember, unlike the old tax regime, the new tax regime doesn’t allow any exemptions for insurance premium payments. Therefore, experts believe that higher adoption of the new tax regime could lead to lower sales for insurance companies.

The other big announcement in the Budget, that hit the insurance sector shares, was regarding the proposal to limit income tax exemption for proceeds of insurance policies with very high value. The budget document said that where the aggregate of premium for life insurance policies (other than ULIP) issued on or after April 1, 2023, is above Rs 5 lakh, income from only those policies with an aggregate premium of up to Rs 5 lakh shall be exempt. However, the document added that the change to will not affect the tax exemption provided to the amount received on the death of a person insured. It will also not affect insurance policies issued till March 31, 2023”.

On the back of these two announcements, shares of LIC, SBI Life, HDFC Life and ICICI Prudential closed the day with losses of up to 12 per cent each.