India’s insurance regulator will seek the opinion of the Central Board of Direct Taxes (CBDT) before changing the format of the valuation balance sheet, or Form I, as demanded by private insurers, a top official said.
Earlier, the private insurers in the country, through their representative body Life Insurance Council, had approached the Insurance Regulatory and Development Authority (IRDA) seeking clarity on tax laws.
They had also demanded changes in the format of the Form I prescribed in Insurance Act 1938, to factor in the losses incurred while calculating the surplus or loss figure on which tax is paid.
“We have received a representation from the Life Insurance Council on this count. A three-member committee of appointed actuaries of life insurers has been formed to come up with a revised format, which will be discussed with CBDT before coming to a conclusion,” R. Kannan, member (actuary) of the IRDA, told IANS over phone from Hyderabad.
The private insurers, who contend that the format was designed several years ago, approached the sector watchdog after getting notices from the income-tax department to reopen their previous tax assessments.
The notices were served as the insurers had shown surplus in Form I even if their profit and loss accounts were painted in red.
“Actually the surplus arises after infusion of capital for declaring bonus (to policy holders) to stay competitive, ” said an industry official, who did not want to identified.
Private life insurers are agitated as the tax department wants to apply the usual corporate tax rate of 35 percent on its investment income and the surplus generated in the health insurance business on grounds that these were non-life insurance businesses.
The tax rate for life insurance business is 12.5 percent.
Given this background, a meeting of appointed actuaries of life insurers was held in Bangalore March 2 in which Kannan and other IRDA officials attended to discuss the Form I issue.
Sources told IANS that some officials of the IRDA did not find merit in the private players’ demand and said the Form I format was prepared for actuarial purposes and amending that to solve a tax issue was not right.
However, some industry officials fear that the private insurers’ demand may backfire in the long run.
“Prior to 1970s, life insurers were taxed like any other corporates. The rate was lowered to 12.5 percent only after Life Insurance Corporation of India (LIC) demanded that saying it pays 95 percent of the surplus with profit policies to policyholders, ” a senior industry official told IANS.
Given the fact that almost the entire portfolio of private players consists of non-profit policies where the entire surplus goes to the shareholders, the tax department may rake up the issue now, he warned.