100% FDI proposal, larger reforms moves along with other Amendments in the various existing Acts, which have been awaited upon by the industry, will be part of separate draft Bill and will tabled in Parliament soon, said Finance Minister Nirmala Sitharaman
Insurance industry has sought further clarities about the details of reforms proposals that will be part of another Bill
New Delhi: In a boost to the Indian insurance sector, Finance Minister Nirmala Sitharaman, in her Budget 2025, presented on on Saturday in the Lok Sabha, said 100% FDI in insurance for firms, which invest entire premium in India, will be allowed.
The larger Reforms Bill including other Amendments of the various existing Acts, which have been awaited upon by the industry for the last two years, are also be part Budgetary announcements, said Sitharaman while addressing a press meet after presenting the 2025 Budget in the Lok Sabha.
For raising the FDI limit and launching broader reforms in the Indian insurance sector, the government will have to bring amendments to the Insurance Act 1938, the Life Insurance Corporation Act 1956, and the Insurance Regulatory and Development Authority Act 1999 and a separate draft bill will be tabled in the Parliament soon for this ,added Sitharaman.
“We will also be simplifying a lot of existing laws governing rules of key management personnel (KMP) in an insurance company, repatriation of profit and dividend by foreign insurers and brining in other reforms proposals,” said M Nagraju, Secretary, Department of Financial Services.
Earlier, the finance ministry in December had sought public comments on its set of proposals to amend various provisions of multiple insurance acts- Insurance Act, 1938,IRADA Act, 1999, LIC Act 1956- to enable 100 per cent FDI, reduction in paid-up capital, and provisions for composite license.
However, the insurance industry has sought further clarities about the details of reforms proposals that will be now part of another Bill.
Shailaja Lall, Partner, Shardul Amarchand Mangaldas & Co said the proposal to raise FDI to 100 per cent have come with an important caveat that the increased FDI limit applies only to companies that invest the entire premium collected within India.
This condition is somewhat ambiguous, given that insurance companies are already prohibited from investing policyholder funds outside India, either directly or indirectly. It is possible this stipulation is specifically targeted at companies operating in the GIFT City, where regulatory frameworks differ slightly to promote international financial services, said Lall.
According to Lall the proposed bill also draws on several provisions from the Insurance Amendment Bill, 2022, which sought to overhaul India’s insurance and reinsurance landscape.
“Key features include allowing composite insurance licenses—enabling insurers to offer life, general, and health insurance under a single entity—and easing restrictions on agents, permitting them to sell products from multiple insurers,” added Lall.
Satyendra Shrivastava, senior partner, Consortia Legal, said any further enhancement of foreign investment ceiling will require an amendment in the Insurance Act, 1938 and amendments in the enabling rules and regulations including exchange control regulations.
“The FM’S budget speech also states that the enhanced foreign investment limit from 74% to 100% will be available to those companies that invest entire premium in India. Currently policyholder funds are already subject to this condition of mandatory investment in India. It will be interesting to see how does the Government intent of simplification of “guardrails and conditionalities associated with foreign investment” actually play out. We will have to wait for the devil and the detail,” commented Shrivastava.
Aravind Venugopal, Partner, Khaitan & Co, said the announcement to simplify regulations is also a welcome step.
However, a detailed review of the fine print—particularly regarding the requirement that the entire premium must be invested in India—is essential, he added.
“With the move to allow 100% FDI in insurance, we could see India moving towards a future with 1,000 insurers in the next decade. A larger number of players will bring greater competition, leading to enhanced innovation, customer-centric products, and improved service delivery. More insurers mean better awareness, wider choices for consumers, and a stronger push for financial protection across all segments of society,” Commented Tapan Singhel, MD & CEO, Bajaj General Insurance.
However, Vibha Padilkar,MD & CEO, HDFC Life Insurance, said,“Allowing 100 per cent FDI may not add much to the competitive environment and dynamics of the Indian life insurance Industry. The country didn’t see much inflow of funds when the FDI was raised from 49per cent to 74 per cent. What is needed is a stable regulatory environment.”
The insurance sector was opened to foreign investors with an FDI limit of up to 26 per cent in 2000. The limit was increased to 49 per cent in 2015 and to 74 per cent in 2021.
The Budget- 2025 has further clarified that proceeds of unit linked insurance policies(ULIPs) which do not benefit from tax exemptions will be taxed at a capital gains rate of 12 per cent instead of the higher marginal tax rate which can go upto 30 per cent.
Also reinsurance for crop cover has been exempt from service tax and threshold for tax deduction at source on insurance commission has been increased to Rs 20,000 from Rs 15,000.
“Currently unit linked insurance plans (ULIPs) issued on or after Feb 1, 2021, with aggregate annual premium above Rs. 2.5 lakh, which are not exempt under section 10(10D), are taxable as capital gains. We now welcome the clarity on taxability of non-exempt ULIPs, issued before February 1, 2021, as capital gains, by rationalisation of relevant income tax provisions.” said Padalkar.
“These amendments will take effect from April 1, 2026 and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years,” says Budget 2025 Memorandum.
Yesterday, the Economic Survey 2024-25 had said the Indian insurance sector has received the highest FDI among the services sector during the April–September period of FY25 (H1FY25).
The segment has attracted more than 62 per cent of the $5.7 billion worth of equity inflows into the services sector.
This was followed by the financial sector, which received 18 per cent of the total FDI inflows in the services sector. The total FDI equity inflows in H1FY25 stood at $29.8 billion.
The Indian insurance market grew by 7.7 per cent Y-o-Y in FY24 to Rs 11.2 trillion, while insurance penetration dropped by 3.7 per cent from 4 per cent, compared to the global average of 7 per cent penetration, indicating a gap in coverage.
Presenting the 14th consecutive Budget under the Narendra Modi government since 2014, Sitharaman said, “Together we embark on journey to unlock our potential for greater prosperity.”
She asserted that the Indian economy is fastest-growing among all developing economies.
In her record 8th straight Budget presentation, the finance minister said, “We see the next five years as unique opportunity to stimulate growth.”