In a major relief for over 30 crore LIC policyholders in India, the state-owned insurance behemoth has received mammoth income tax refund orders worth Rs 25,464 crore from the tax department.
This includes interest payouts of Rs 14,000 crore, with the balance Rs 11,000 crore being tax refunds.
As per regulatory filings, the substantial tax refund will be shared between shareholders and participating policyholders in the ratio of 92.5:7.5. Here’s how this bonanza could boost your LIC investments.
Break-up of Principal & Interest Components
As per the regulatory update, the principal tax refund amount of Rs 11,464 crore has already been accounted for by LIC and will not impact the current year’s profitability.
However, the massive interest payout of Rs 14,000 crore will be booked as an extraordinary income this fiscal.
Since the corporation follows a participating structure where policyholders share profits, nearly Rs 10,500 crore of this interest bonanza will be transferred to the Life Fund.
The balance Rs 3,500 crore will accrue to the over 66 lakh retail and institutional shareholders of LIC.
Read More: LIC Premiums Rebound in December 2023 After Weak 9 Month Show
Higher Returns for Policyholders
Actuaries estimate that this surprise Rs 10,500 crore addition to the corporation’s Life Fund could translate into a nearly 1.5-2% increment in policy bonuses and annuity payouts.
So the 30 crore participating policyholders across various plans like Jeevan Anand, Jeevan Labh, Money Back, and more can expect a boost in their returns for this fiscal.
For context, LIC declared a maiden interim bonus of Rs 1.50 per thousand sum assured in 2022-23, so the next final bonus could witness an upside.
Moreover, the investing behemoth also commands over Rs 41 lakh crore in assets, so the extra funds will provide more fuel for its profitable investment strategy in equities and infrastructure. Ultimately, the investing gains will also aid policyholder returns.
Tax Litigation Being Resolved
As per the exchange filing, LIC has received IT refunds between 2013 to 2020 after appeals in multiple assessment years. This indicates that the tax tribunal has finally settled several litigations in favor of the insurance major.
Out of the total receivable of Rs 27,597 crore, only Rs 2,133 crore pertains to fresh tax demands that LIC is contesting. Analysts see this as a positive trigger that hunky tax disputes are getting resolved in the insurer’s favor, boosting investor sentiment.
Read More: LIC Slapped With Rs 663 Crore GST Demand Notice For ‘Wrong ITC Availment’
Buoyant Q3 Results Likely
Market observers also estimate that LIC could report one of its best quarterly performances ever in Q3FY23 when it declares results soon.
The Rs 10,500 crore funds addition to the Life Fund will allow LIC to shore up provisions and reserves, savings from which mostly fall to the bottom line as per accounting policies.
The tax refund bonanza coupled with the equity market rebound in recent months creates the perfect atmosphere for blowout Q3 numbers from the insurance juggernaut.
Valuation Upside for LIC Stock
Ever since listing in May 2022, LIC shares have been languishing below their IPO issue price of Rs 949 due to market headwinds. But in recent weeks, the stock has seen renewed buying interest amid the tax refund news and positivity in broader markets.
LIC share is already up nearly 15% in 2023 as investors anticipate bumper Q3 results. Analysts say the stock could march towards its all-time highs above Rs 900+ if the upcoming financial performance lives up to lofty expectations.
The dividend bonanza and upward profit momentum also make LIC share a good contrarian bet in the uncertain macro environment.
Bottom Line for Policyholders
In summary, LIC policyholders across the board have cause for celebration with the IT refund windfall.
Not only does it provide higher life cover capital for the corporation, but Participating Policy funds will directly enjoy a Rs 10,500 crore profit upside this fiscal.
For crores of retail investors, this translates into noticeably improved returns from their beloved LIC plans, proving why it continues to be India’s most trusted insurance brand for over six decades and counting!
