Life insurance companies want the current system of tax exemption for insurance maturity proceeds to be continued. The proposed Direct Taxes Code has suggested deduction of tax on the final payout, while exempting the policy premium at the time of contribution and the interest on it.
The insurers have made a representation to the Government that the Exempt Exempt Exempt (EEE) method of computation should continue as against the Exempt Exempt tax (EET) method proposed in the Direct Taxes Code.
Insurance products are driven by tax benefits. The January-March quarter, which is the tax planning season, contributed 45-50 per cent of the total sales of the industry, said Mr Nageswara Rao, Chief Executive Officer, IDBI Fortis Life Insurance.
The domestic insurance industry is at a nascent stage and taxing the maturity proceeds as proposed by the Direct Taxes Code will adversely impact the life insurance business and the industry. It will discourage investors to invest in long-term savings as it may result in unjustified tax burden especially on those customers who do not avail themselves of the benefit under Section 80C, said Mr T.R. Ramachandran, Chief Executive Officer and Managing Director, Aviva Life Insurance.
Life insurers have been demanding for some time that service tax should be levied only on fund management charges. At present, the insurance industry has to pay service tax on fund management charges, risk premium, agents’ commission and exit load. According to the insurers, this puts them at a disadvantage vis-a-vis mutual funds that need to pay service tax only on fund management charges.
The insurers are hoping that the implementation of the Goods and Services Tax will ensure a level playing field between insurance polices and mutual fund schemes.
Carry forward of losses
Mr S.B Mathur, Secretary-General, Life Insurance Council, said the Government should consider increasing the period for carry forward of losses to 12 years from eight years at present. Companies have to incur huge expenditure for setting up their infrastructure for meeting their rural sector obligations, as mandated by the insurance regulator, Mr Mathur said.
Some of the other demands of the industry include the creation of a separate category of savings under Section 80C of the Income-Tax Act, for tax exemption on investments in life insurance policies.
Separate limit for tax exemption for long-term saving instruments such as life insurance or increasing the limits under Section 80C and 80D for tax exemption on life and health insurance premium could be one way to promote savings behaviour, said Mr Raman Garg, Deputy Chief Financial Officer, Max New York Life Insurance.
Service tax exemption
There needs to be some distinction between short-term savings and long-term savings. Otherwise, insurance products will lose out due to their long-term nature, Mr Mathur added.
The Government may consider providing tax benefits such as service tax exemption for small ticket products where premium contribution is Rs 1,000 annually, Mr Garg said.
The insurers are also demanding that the minimum alternative tax should not be levied on the assets of policyholders as they form a substantial part of the assets of the insurance company.