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General Insurance Premiums May Soar From 2011-12

Budget has projected an imposition of up to 30% tax on equity investment income of general insurers in India

The Union Budget of India has proposed that general insurance policyholders may face a steep rise in premium rates beginning 2011-12. The Budget has projected an imposition of up to 30% tax on equity investment income of general insurers, with effect from April 1, 2011 – reported Hindu Business Line.

The equity investments differ from insurer to insurer for PSU general insurance companies that control nearly 60% of the market, an estimated 50% of the investment income is generated from equities.

Insurance companies use a part of the premium collected in settling claims and for other managerial expenses. The balance is invested in equity and debt market to generate income.

While underwriting profits and income from investment in other instruments, like interest and debentures, are taxable, income from equity investments were so far kept out of tax net in accordance with a CBDT guideline.