We would expect following changes be effected through upcoming Union Budget Additional stand alone tax exemption limits for insurance premiums: The present tax exempting section under the Income Tax Act, 1961 (Section 80C) takes into its ambit provident fund contributions, PPF contributions, National Savings Certificates purchased and a host of other investments. With the importance of life insurance increasing and also change in lifestyles resulting in importance of future income generation it has become necessary to revisit the above limit under Section 80C. It is suggested that a standalone additional exemption limit of Rs. 50,000 (over and above the already existing limit of Rs 100,000) be specified for insurance premiums alone under the Act. This in addition to offering tax benefits to the individual would also better ensure insurance penetration. The Exempt, Exempt, Exempt (EEE) regime to continue for life insurance Companies.More...
The Expectations Of The Insurance Industry From The Union Budget
ReplyDeleteBy - Anuj Mathur, Chief Financial Officer and Company Secretary, Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited
We would expect following changes be effected through upcoming Union Budget
Additional stand alone tax exemption limits for insurance premiums: The present tax exempting section under the Income Tax Act, 1961 (Section 80C) takes into its ambit provident fund contributions, PPF contributions, National Savings Certificates purchased and a host of other investments. With the importance of life insurance increasing and also change in lifestyles resulting in importance of future income generation it has become necessary to revisit the above limit under Section 80C. It is suggested that a standalone additional exemption limit of Rs. 50,000 (over and above the already existing limit of Rs 100,000) be specified for insurance premiums alone under the Act. This in addition to offering tax benefits to the individual would also better ensure insurance penetration. The Exempt, Exempt, Exempt (EEE) regime to continue for life insurance Companies
Taxation only on Profit in Shareholders P&L: Currently there are a lot of administrative issues in terms of understanding of the “real profits” of an insurance company. This results in different tax authorities taking a varied stand. To enable reduction of such issues the profits determined under the shareholders P&L account should only be subject to taxation. All transfers to the policyholder P&L account to overcome any shortfall in the policyholder account to be allowable as an expense.
Exemption of All Premiums to be allowed for tax exemptions: Currently U/s 80C exemption is available for premium paid up to 20% of the capital sum assured in any financial year. This ceiling should be removed since payments made over and above the 20% ceiling still continue to enjoy the same kind of life insurance benefits that any other policyholders also the periodicity of premium payments is a pure commercial decision made by the tax payer. Similarly, U/s 10(D), exemption should be extended to any sum received on maturity where premium paid in any year is more than 20% of the capital sum assured.
Exempt Life Insurance business from Service Tax: Internationally life insurance is not subject to VAT, therefore we would request that the life insurance business be exempt from levy of service tax.
Service tax charged on Commission payable to agents under reverse mechanism to be removed and replaced by utlisation of cenvat credit to pay off the liability: Under the present tax mechanism the service tax payable on the commission paid to agents needs to be paid in cash by the life insurer. This is then claimed as a cenvat credit by the insurer. The intent of the law is for the cenvat credit which can be adjusted against the output tax which might be payable by the insurance company. Since the output tax liability is much lower as compared to the tax payable on commission therefore over the past few years the cenvat credit balance has been ballooning in the books of the insurers. We would therefore request that the service tax payable on commission to agents be allowed to be adjusted against the available cenvat credit. In case of a shortfall, the same be paid in cash and the insurer be allowed to claim a cenvat credit.