Budget 2024: Receive Higher Payouts on Life Insurance Policies from October 1, 2024
Every year, the central government issues its list of expenditures for all sectors in a Union Budget for the same financial year. After thoroughly studying the Indian economy and consulting with all Members of Parliament, the government issues a budget that helps all sectors to grow and sustain.
Apart from setting an expenditure ratio, the government also carefully increases and decreases the existing tax rate slabs for better development and sustainable growth of the economy. This article will briefly study the Budget 2024 insurance changes and how they will impact regular customers.
What Are the Changes for Life Insurance in Budget 2024?
By strictly working on IRDAI's mission, "Insurance for all by 2047," the central government has focused significantly on the insurance sector in Budget 2024.
The following changes are announced for the insurance sector in Budget 2024:
- TDS (Tax Deducted at Source) on life insurance policy payouts would be reduced from 5% to 2%. (Effectively starts from October 1, 2024)
- The commission or any payout subject to TDS on life insurance policies would also be reduced from 5% to 2%. (Effectively starts from April 1, 2025)
How Do the Reduced TDS Rates Help Potential Life Insurance Policy Customers?
TDS, or Tax Deducted at Source, is the amount deducted by the payer before transferring the balance to the payee. Before the Union Budget 2024, the TDS rate on insurance was 5% for all types of payouts paid to nominees. Let us understand this with an example:
Suppose Mrs. Bhavna Gupta has had a life insurance policy for 25 years, which will mature in June 2024. If the maturity amount she will receive is Rs. 1 Crore, then as per the old TDS tax regime, she would be charged 5% TDS by the insurer company. Whether she chooses to receive the maturity amount in a lump sum or as regular guaranteed income, she would be charged the same.
Let's see a brief illustration of her payout:
However, if she chooses to receive the maturity amount via regular income for a certain period of years, she would be charged the same @5% TDS on each payout.
Now, as per the new TDS tax rates of Budget 2024, with the same parameters, let's see the brief illustration she will receive:
So, if we compare the old TDS rate versus the new TDS rate, she is saving a wholesome Rs. 3 lakhs on maturity. Now you see, this is just an illustration for a single customer. Millions of customers whose life insurance policies will mature this year will save a large pool of money, which can further come into the Indian market and help it grow.
How Do the Reduced TDS Rates Help the Insurer?
The insurance industry works on a simple principle of commissions. The more policies sold by an agent or the business, the higher the commission would be paid. Now, TDS will also be charged for these commissions before the final payout. So, as per the existing rate of TDS, @5% would be charged.
For example, if an insurance company has to pay a Rs. 1 Lac commission to the agent, the company would deduct Rs. 5,000 as TDS from the final payment.
However, as per the 2024 budget, the TDS rate would be reduced to 2%, meaning the insurer company would pay much higher than the old tax rate.
For example, if an insurance company has to pay a Rs. 1 Lac commission to the agent, the company would deduct Rs. 2,000 as TDS from the final payment.
In a Nutshell
The Budget 2024 impact on life insurance is significant and multifaceted. By enhancing tax benefits, promoting digital insurance platforms, and supporting low-income groups, the government aims to make life insurance more accessible, affordable, and efficient for all citizens.
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