We would recommend a separate limit for deductions under Section 80C for long-term saving instruments such as life insurance. Currently, the deduction under Section 80C also includes short-term saving instruments such as mutual funds and fixed deposits. Life insurance and pensions are the only segments of financial services that address the needs of individuals in the long term. Hence, the Government should look at encouraging people to save for long term by providing a separate limit for long-term savings.
Insurance is a long-term gestation business. Currently, we are allowed to carry forward losses for only eight years. Most insurers have not made profit even in the tenth year of operations. Hence, we recommend that the period for carry forward of losses be increased to 12 years.
Proposed EET treatment of long-term savings and investment product under the DTC- Section 10(10D): The insurance industry in India is at a nascent stage and taxing the maturity proceeds will adversely impact the life insurance business and the industry.
It will discourage investments in long-term savings as it may result in unjustified tax burden especially on customers who do not avail themselves of the benefit under Section 80C.
Currently, the first two stages under the life insurance policies, that is, investment and accretion are not completely tax fee. At the time of investment, the tax benefit is available only up to the maximum limit of Rs 1 lakh and subject to the condition that the sum assured is at least five times the annual premium. Further, accretion is taxed as life insurance companies are required to pay tax at the rate of 12.5 per cent on the surplus and service tax at 10 per cent is on all charges including mortality charge and commission paid to the agents.
Minimum Alternative Tax: MAT liability should not be levied on the assets of policyholders which form a substantial part of the assets of the insurance company.
Increase in FDI to 49 per cent is long awaited and we are eagerly looking forward to the approval of the Insurance Bill.
T.R. Ramachandran, CEO & MD, Aviva India