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Passing a key law to raise foreign shareholding in insurance companies and carving out a separate tax exemption limit for insurance premiums are among the demands the life insurance industry has placed with the Finance Ministry.
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.
“Upping the FDI cap will go a long way in raising additional capital for long-term development and growth of the sector. The insurance industry requires a sizeable amount of capital over the next few years to reach its full potential. This move will reduce the pressure of capital infusion on Indian corporates operating in the sector,” said Pavan Dhamija, Managing Director and CEO of DLF Pramerica Life Insurance.
Tax Concessions
Life insurers are demanding income-tax concessions to incentivise long-term policies for consumers. 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 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.
Insurers are also looking at reversal of some of the provisions introduced in the 2012 budget.
“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. However, we would like the government to go back to 5 times for income tax exemptions as in the case of older people the mortality cost is higher and such a policy will be expensive for them,” said Sunil Sharma, Chief Actuary, Kotak Life.
The industry has also asked for a review of service taxes on Unit Linked insurance products (ULIP’s) and immediate annuity products, said Rituraj Bhattacharya, Head-Product Development and Market Management, Bajaj Allianz Life Insurance.
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