Carving out separate tax exemption limits for insurance premiums paid and the passage of a key law to raise foreign shareholding in insurance companies are among the demands the life insurance industry has placed with the Finance Ministry.
Currently, life insurance premium paid can be deducted from the gross total income under section 80C for calculating income tax liability.
However, along with insurance premiums, investments in banks’ tax saving deposits, public provident fund, national savings certificates, infrastructure bonds, equity-linked savings schemes and home loan principal repayment are all included within the Rs 1 lakh tax exemption limit. Hence, the need for carving out a separate tax-exemption limit for insurance.
“We would like the Budget to offer a separate deduction for long-term insurance products or a carved out limit for insurance only, under this section,” said Sandeep Ghosh, MD & CEO, Bharti AXA Life Insurance.
In last year’s Budget, it was mandated that for life insurance policies the sum assured would have to be ten times the premium for tax benefits to be applicable.
“This is a distortion as compared to competing products such as bank deposits and mutual funds where the deduction is based on tenure of the product. Also it is detrimental for older people seeking life cover as it impacts their premium adversely. We have requested the Finance Minister to apply the same criteria to insurance products to enable it to attract long-term saving,” said T.R. Ramachandran, CEO and MD, Aviva India.
Sunil Sharma, Chief Actuary at Kotak Mahindra Old Mutual Life Insurance, said that in order to promote long-term savings for retirement, pension contribution from individuals should have a separate exemption limit of about Rs 50,000 a year.
FDI in insurance
The pending Insurance Amendment Bill seeks to raise the foreign direct investment (FDI) cap in private sector insurance companies to 49 per cent from the current 26 per cent.
“The increase in FDI will give the Indian insurance industry the necessary capital infusion for its development and expansion. Delay in enabling this has clouded further investments in the sector. We are hoping that all political parties will look at the FDI limit in an overall perspective and encourage the growth of the insurance industry in the country,” said Ramachandran.