($1 = 81.9300 Indian rupees) (Additional reporting by Aftab Ahmed; Editing by Savio D'Souza)
By Nikunj Ohri
NEW DELHI, March 15 (Reuters) - The Indian government is
unlikely to make changes to its budget proposal of taxing the
total returns on high-value life insurance policies, two
government officials said on Wednesday, amid demands by
insurance companies to reconsider the move.
The government, presenting the 2023/24 budget on Feb. 1,
said it would scrap the tax exemption on the total returns upon
maturity of life insurance policies if their aggregate premium
exceeded 500,000 rupees ($6,103).
The move, which will come into effect for policies issued
from April 1, has rattled insurers, with top company executives
meeting Finance Minister Nirmala Sitharaman and finance ministry
officials to petition them to reconsider the proposal.
"The government is not keen to revise the 500,000 rupees
threshold limit as it impacts only high net-worth individuals,
and not the common man," said one of the officials, who did not
want to be named.
The government will, however, consider allowing these
investments to be adjusted for inflation, also known as
'indexation', the official added.
The Department of Financial Services has suggested that the
Prime Minister's Office allow these indexation benefits, said
another government official, adding the PMO will make the final
decision.
India's finance ministry did not reply to Reuters' emails
and messages seeking comment. All three government officials
declined to be named as the parliament is yet to pass the
budget.
Indexation means adjusting purchasing price to the rate of
cost inflation index (CII) that is published periodically by the
income tax department.
If allowed, indexation will lower the policyholder's tax
liability, said Kuldip Kumar, an independent tax consultant.
This benefit will mean insurance proceeds will be taxable as
capital gains rather than "income from other sources", as
proposed in the budget, which will reduce the tax rate to 20%
from 30%, Kumar said.
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