Insurance stocks plummet up to 13 pc on Budget day

Shares of insurance companies came under heavy selling pressure on Saturday, tumbling up to 13 per cent, after income tax changes announced in the Budget came with riders regarding exemptions which disappointed the markets. "Budget was below par considering that market had very high expectations from the government. Income tax changes announced has come with riders of giving up exemptions which disappointed the markets, with insurance sector being impacted the most," said Vinod Nair, Head of Research, Geojit Financial Services.

Shares of Max Financial Services plummeted 12.78 per cent, ICICI Prudential Life Insurance Company plunged 10.93 per cent, SBI Life Insurance Company tumbled 10.02 per cent, The New India Assurance Company 7.16 per cent and HDFC Life Insurance Company 6.06 per cent on the BSE. A taxpayer opting for the new income tax slabs proposed in the budget will have to forego a host of exemptions and deductions, including standard deduction of Rs 50,000, tuition fee of children, and contribution towards insurance premium and provident fund.

However, the new income tax system proposed by Finance Minister Nirmala Sitharaman in the Budget is optional and a taxpayer can choose to remain in the existing regime with exemptions and deductions. As per the Budget document, an individual taxpayer opting for the new tax regime will not be entitled for deduction under section 80C.

Section 80C provides deduction for contribution towards insurance premium, deferred annuity, provident fund and certain types of shares. Taxpayer will also have to forego deduction under 80CCC (contribution towards certain pension funds), Section 80D (health insurance), 80E (interest on loan for higher education), 80EE (interest on loan taken for residential property), 80EEB (purchase of electric vehicle), 80G (donation to charitable institutions), and 80G (rent paid).