Saturday, Jul 11, 2020 | Last Update : 02:43 PM IST

109th Day Of Lockdown

Maharashtra2384611326259893 Tamil Nadu130261846941829 Delhi109140846943300 Gujarat40155281832023 Uttar Pradesh3370021787845 Karnataka3341811878471 Telangana3222410123339 West Bengal2710917348880 Andhra Pradesh2542213914292 Rajasthan2317417620497 Haryana1993414904290 Madhya Pradesh1665712481638 Assam15537984935 Bihar1433010251111 Odisha11956797273 Jammu and Kashmir92615567149 Punjab71404945183 Kerala6535370828 Chhatisgarh3526283514 Uttarakhand3305267246 Jharkhand3192217022 Goa203912078 Tripura177313241 Manipur14357930 Puducherry120061916 Himachal Pradesh110182510 Nagaland6733030 Chandigarh5234037 Arunachal Pradesh2871092 Mizoram2031430 Sikkim134710 Meghalaya113451
  Business   In Other News  07 Feb 2020  Budget proposals to impact growth of life insurers

Budget proposals to impact growth of life insurers

THE ASIAN AGE. | FALAKNAAZ SYED
Published : Feb 7, 2020, 2:09 am IST
Updated : Feb 7, 2020, 2:09 am IST

The net impact of the change will range from 50 basis to 200 basis points on the margins and upto 5 per cent on the valuations.

Another blow to life insurers will also come from withdrawal of Section 80C deduction for assessees that opt for the new tax regime.
 Another blow to life insurers will also come from withdrawal of Section 80C deduction for assessees that opt for the new tax regime.

Mumbai: The government’s move to withdraw dividend distribution tax (DDT) and transfer the tax liability of dividend income to investors will impact the margins and the valuations of life insurance companies.

According to analysts, the net impact of the change will range from 50 basis to 200 basis points on the margins and upto 5 per cent on the valuations.  Another blow to life insurers will also come from withdrawal of Section 80C deduction for assessees that opt for the new tax regime.

The Union Budget introduced a new optional personal tax regime and removed dividend distribution tax. These changes are likely to impact both demand and margins for life insurance products.

Analysts have cut the individual new business growth assumptions for FY21 estimates and valuations of life insurers.

Insurers till now enjoyed tax benefit on dividend income received on investments, and thus their effective tax rate was lower than the corporate tax rate. The Budget abolished the DDT and makes dividend taxable in the hands of the recipient. However, this will partly be offset by new section 80 M which allows insurers to take the benefit of dividend on investments received by them (up to the extent of dividend distributed by them to their shareholders).

Jefferies India in its report said, “As per HDFC Life, the net impact of the (DDT) change will be around 80 basis points on the value of the new business margins and around one per cent on the embedded value. As per Max Life, they will have around one to 1.5 per cent impact on embedded value and around 50-80 basis points margin impact. The impact for ICICI Prudential could be slightly more given its higher mix of ULIPs. SBI Life reports numbers in both methods (without using Section 80M benefit through), where margin difference in 200 basis points and the embedded value impact is 5 per cent between two methods (numbers are provisional, exact numbers will be reported in 4Q).”

Madhukar Ladha, Analyst, HDFC Securities said, “Our calculations suggest that individuals with income in the range of `7 to 15 lakh will have lower propensity to invest as the tax savings on incremental investment is in the range of around 19-30 per cent. Additionally, individuals within this lower income range may prefer a higher disposable income as against higher tax savings. We expect individuals earning higher than `15 lakh to continue to prefer using deductions/exemptions as tax reduction on incremental savings is 43.2 per cent (for income of Rs 22 lakh). While it is difficult to quantify the impact of this on demand we have cut our FY21E APE estimate between 1.7-5.8 per cent for all companies.”

On abolishing of DDT, Ladha said, “While the Budget abolishes DDT and makes dividend taxable in the hands of the recipient, it allows for deduction of dividend paid by the company to its shareholders thus providing some relief to companies. Our calculations suggest that this move reduces FY21 estimated value of new business margins of insurers by upto 70 basis points. We expect HDFC LIFE’s margin to be most impacted by 70 basis points, while MAX Life’s margins are not likely to get impacted at all.”

Tags: dividend distribution tax